Most Asia shares rebound on PBOC but Shanghai extends slide

By Chikako Mogi

TOKYO (Reuters) - Most Asian shares turned around a four-day losing streak and rose on Wednesday as investors took comfort from U.S. data underscoring an American recovery and assurances from China's central bank that it will offer funds to banks if needed.

But fears of a credit crunch and slower loan growth continued to fuel selling of Chinese banking shares in Shanghai, pulling Japan's Nikkei (.N225) down nearly 1 percent at one point after a solid start. (.T)
Even as they eased for a fourth day, China's short-term borrowing rates remained at elevated levels and some traders expected liquidity to remain tight until mid-July. (CN/)
"Worries over China's banking system and economy still weigh on the markets," said Hiroaki Hiwada, a senior strategist at Toyo Securities.
Hong Kong shares (.HSI) were up 0.9 percent but Shanghai shares <.csi300>(.SSEC) once again turned lower and extended losses to more than 1 percent, after tumbling nearly 7 percent at one point on Tuesday to the lowest since January 2009.
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> climbed 1.1 percent after plumbing an 11-month low on Tuesday, with Australia, Taiwan and Southeast Asian bourses firming.
Still, the gauge's relative strength index (RSI) was a weak 23.7, showing investor confidence in pan-Asian bourses remains badly shaken after a month-long emerging market slide.
Traders were largely skeptical about prospects for a near-term market recovery, attributing strength in parts of Asia largely to short-covering after heavy selling in recent days. Indeed, foreign investors sold South Korean shares for the 14th straight session. Seoul shares (.KS11) turned 0.3 percent lower.
"The PBOC comments did not help much to improve people's confidence as the consequences are yet to be seen amid slow (China) economic growth," said Alex Wong, a director at Hong Kong-based Ample Finance Group.
"A firmer tone in Hong Kong-listed Chinese banks shares is purely short covering while in China, the weak tone will not change all of a sudden. Longer-term sentiment in both China and Hong Kong is still very weak."
China's short-term cash rates soared to record peaks last week after the PBOC allowed money market funding to tighten to curb credit for the lightly regulated and speculative "shadow banking" sector, stoking worries of a cash squeeze which could derail economic growth.

The People's Bank of China (PBOC) said late on Tuesday it had provided cash to some institutions facing temporary shortages and would continue to do so if needed, seeking to tame investor jitters amid spiking money market rates that raised fears of a banking crisis and sent shares plummeting.

DOLLAR FIRMS, GOLD PLUNGES
Global equity markets rose on Tuesday after U.S. economic reports ranging from manufacturing and housing to consumer confidence buoyed optimism - after days of nerve-wracking uncertainty over the intentions of the world's biggest central banks.
The improving U.S. data pushed up the dollar, which in turn slammed precious metals hardest among the generally bearish dollar-based commodities.

Tuesday's data showed strong gains in U.S. business spending plans last month, the largest annual rise in house prices in seven years in April, and consumer confidence at its highest level in more than five years this month. The housing sector was also firming, with new single-family home sales near a five-year high in May.

"Overall these data align with the Federal Reserve's assessment that the U.S. economy is improving modestly, and specifically over the past two weeks, U.S. economic data has by and large beaten consensus forecasts," said Christopher Vecchio, analyst at DailyFX.

The Fed ignited a global market sell-off last week by announcing a plan to end stimulus, starting with a toning down of its monthly bond-buying later this year if the economy continued to improve as forecast.
The dollar pared early gains to hold steady against the yen around 97.77, and was up 0.08 percent against a basket of major currencies (.DXY), crawling back towards a three-week high of 82.841 seen on Monday.
U.S. crude futures slipped 0.8 percent at $94.58 a barrel and Brent fell 0.5 percent to $100.78. (O/R)
Spot gold dropped 2.3 percent to a near three-year low of $1,247.24 an ounce, dragging spot silver down more than 4 percent to $18.77, its lowest since August 2010. (GOL/)
"A drop in emerging currencies has made dollar-based commodities prices more expensive and spurred outflows from commodities markets which have been suffering from fund outflows for some time now," said Tetsu Emori, a commodity fund manager with Astmax Investments in Tokyo.

(Additional reporting by Ian Chua in Sydney, Donny Kwok in Hong Kong and Tomo Uetake in Tokyo; Editing by Eric Meijer)