GLOBAL MARKETS-China shares bounce as dismal trade data spurs easing talk

Wed Jul 10, 2013 2:53am EDT

* China shares jump, lifting Asian shares and copper prices

* China warns of "grim" trade outlook

* Euro stabilises after sliding to 3-month low vs dollar

* European markets expected to open steady

* Dollar slips from 3-year high vs basket of currencies

By Dominic Lau

TOKYO, July 10 (Reuters) - Chinese shares rose sharply on Wednesday, with traders citing talks that China's central bank may ease policy to boost growth after the country's exports fell for the first time in 17 months.

European shares were expected to open steady, with Britain's FTSE 100 seen down as much as 0.1 percent and Germany's DAX up as much as 0.2 percent. U.S. stock futures suggested a flat opening for Wall Street.

China's exports fell 3.1 percent in June from a year earlier, while imports dropped 0.7 percent, severely missing market expectations and reinforcing signs of a second-quarter economic slowdown in the world's second-largest economy. Beijing also warned of a "grim" outlook for trade.

The downbeat data follow Beijing's crackdown on the use of fake export documents to close a loophole for short-term money inflows that had exaggerated China's export performance.

"The surprisingly weak June exports show China's economy is facing increasing downward pressure on lacklustre external demand. Exports are facing challenges in the second half of this year," said Li Huiyong, economist at Shenyin & Wanguo Securities in Shanghai.

China's CSI300 index gained 2.2 percent, however, on the easing talk.

The index has been battered recently as Beijing tried to bring risky lending under control. At one point, it had fallen as much as 24 percent from a near three-month peak touched on May 29, and is down nearly 13 percent this year.

MSCI Asia-Pacific ex-Japan index was up 0.7 percent after gaining as much as 1.2 percent to a one-week high before the Chinese data. Earlier, Asian shares were buoyed by Wall Street's gains on optimism for U.S. company earnings.

Assets in Australia, seen as a proxy of China's growth, were also hit after the data. The Australian dollar fell to a session low of $0.9125 before stabilsing at $0.9192, and the country's S&P/ASX 200 index also pared gains.

Copper prices reversed early losses incurred after the trade data from China, a top consumer of raw materials, as Chinese stocks moved higher. They added 0.5 percent to above $6,700 a tonne, while gold put on 0.2 percent, extending Tuesday's 1.1 percent rise.

Brent crude prices were steady at just below $108 a barrel after rising 0.6 percent in the previous session on concerns that violence in Egypt could ignite conflict in the Middle East.

YEN GAINS

But concerns over China pulled the dollar further from a three-year high against a basket of major currencies touched on Tuesday. It was last down 0.1 percent after rising as high as 0.2 percent.

The dollar also fell 0.6 percent to 100.52 yen, which weighed on Tokyo's Nikkei average, down 0.4 percent.

Investors have been betting on further dollar gains as the U.S. Federal Reserve prepares to scale back its $85 billion a month stimulus programme. The U.S. central bank is to release its minutes of the June policy meeting later in the day, plus Fed Chairman Ben Bernanke is to speak on Wednesday.

"Dollar buying will continue. With rising Treasury yields, there is no incentive to sell the dollar, particularly against the euro," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

But Murata added, "any evidence of a slowdown in China will prompt some people to buy back the yen."

EURO STABILISED

The euro steadied at $1.2793 after sliding to a three-month low of $1.2755 after ratings agency Standard & Poor's cut Italy's debt rating by one notch to BBB, the second lowest of the investment grade status, and left its outlook on negative, citing concerns about prospects for the Italian economy.

The downgrade, which moved in line with rival Moody's, came a day before Italy was due to sell 9.5 billion euros of Treasury bills and two days before a planned sale of up to 6.5 billion euros of medium- and long-term bonds.

Also weighing on the common currency were comments by European Central Bank policymaker Joerg Asmussen, who said the central bank's guidance on interest rates staying at record lows extends beyond 12 months.

The ECB later issued a statement saying Asmussen had not intended to give any guidance on the exact length of time for which it expects to keep rates at record lows.

Sterling was up 0.1 percent at $1.4883 after sliding to a three-year low of $1.4814 in the previous session on weak factory output and trade data, seen as raising the risk of the Bank of England easing monetary policy in the coming months.

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