July 8, 2015 / 9:07 AM / 4 years ago

GLOBAL MARKETS-China rout panics Asia; Greek worries smoulder

* Chinese shares plunge again despite Beijing’s support

* Yen buoyed by safe-haven buying as risk sentiment fades

* Euro zone sets end-of-week deadline for Greece

* Fed minutes due in U.S., Wall Street set to start in red

By Marc Jones

LONDON, July 8 (Reuters) - World markets were shaken on Wednesday by a crash in Chinese stocks, a slump in commodities and questions over whether Europe would save Greece.

Wall Street was set to start around 0.8 percent in the red before the latest Federal Reserve meeting minutes, but most of the focus was on a 6.75 percent plunge in China shares overnight as regulators warned investors were being gripped by “panic sentiment”.

Hong Kong dropped 8 percent, and Japan’s Nikkei and stocks in Australia took heavy blows, leaving investors only the yen and safe-haven government bonds for refuge. The yen rose to a six-week high against the dollar.

European shares had looked on course earlier to snap a four-day losing streak. But global uncertainty also left traders wondering whether Fed minutes due later, normally a market mover, would provide much value given the emerging risks.

Beijing’s steps to stabilise its turbulent markets in recent weeks have had little success so far. Nick Lawson, a managing director at Deutsche Bank in London, said the authorities could now “let the unwind run its natural course and deal with the fallout, or manipulate the market but run the risk that this will entail so many impediments to free trade that index providers and foreign investors will be discouraged from entering the market for a long time.”

China’s worries for once overshadowed Greece, which made a formal request for a 3-year loan deal from the euro zone rescue fund.

The bloc’s leaders on Tuesday gave Athens until the end of the week to come up with proposals for reforms in return for loans. Without the aid, Greece is likely to crash out of Europe’s single currency.

One of the European Central Bank’s top policymakers, Christian Noyer, said that without a deal the ECB would pull the emergency funding currently keeping Greek banks alive.

“Our rules oblige us to stop immediately at the point when there is no prospect of a political accord on a programme, or at the point when the Greek banking system crumbles - which would happen if it enters generalised default on all its debts,” he told French radio.

But European investors kept faith that a deal was still possible. The pan-regional FTSEurofirst 300 rose for the first time this week, led by Italian and bank stocks.

The euro also climbed back to $1.1035 and southern euro zone government bonds made ground as risk appetite tentatively recovered.

DELICATE CHINA

Commodity markets, highly exposed to China, were slowly starting to regain their footing before U.S. trading.

Oil prices pulled out of their dive at $52.65 a barrel for U.S. crude and $57.29 for Brent. This week is shaping up to be their worst since March.

The selloff in metals markets also eased after copper in London and Shanghai had dropped to six-year lows and gold had slid to a four-month trough of just below $1,150 an ounce.

“A perfect storm of events has hit oil markets,” Morgan Stanley said.

The crash in China extended a plunge that has slashed Chinese shares 30 percent since mid-June as measures to spur the economy lose traction.

Over 500 China-listed companies announced trading halts on the Shanghai and Shenzhen Exchange on Wednesday, taking suspensions to about 1,300, 45 percent of the market. The yuan touched a four-month low in the offshore market.

“I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities.

“Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips.”

The Australian dollar, often used as a liquid proxy for China plays, slumped to a six-year low against the U.S. dollar of $0.7389.

With Fed minutes also looming, the yield on the 10-year U.S. Treasury note last stood at 2.220 percent, below its U.S. close of 2.231 percent on Tuesday, when it had also dropped to a five-week low of 2.185 percent. (Reporting by Marc Jones; Editing by Larry King/Ruth Pitchford)

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