Calm initial reaction in Footsie to rout in Chinese stocks, yen weakens

UK stocks kicked off the week with only a slight move lower despite another day of sharp losses in China's main stockmarkets and another large drop in oil futures.

The Shanghai Stock Exchange's Composite Index finished the session down by 5.33% to 3,016.70 amid a spike in overnight interest rates in Hong Kong, apparently following a move by officials in Beijing to limit the downward pressure on their country's currency, the yuan.

However, outside of Hong Kong moves to the downside in some of the region's other main bourses were far more limited. The Hang Seng lost 2.96% to 2,723.65, but Sidney's ASX only surrendered 1.17% to 4,932.24 and the South Korean Kospi another 1.19% to 1.894.84.

As of 08:08GMT the dollar/yen - a widely-followed gauge of risk aversion - was edging higher by 0.05% to 117.57.

Likewise, as of 08:08GMT the top flight index was only off by 20.17 points to 5,892.27.

Markets in Tokyo remained shut on Monday in observance of a public holiday.

Over the weekend, some market commentary had held out the prospect that the return of all senior traders to their desks this week, following the holidays, might see markets react more calmly.

Over in the oil patch it was a different story, with front month Brent oil futures skidding lower by 3% to $32.58 per barrel in ICE trading.

On Monday, Chinese authorities reportedly bought yuan in the offshore market in an apparent bid to foil the so-called 'carry trade' and limit the differential between onshore and offshore exchange rates.

That however appeared to throw a spanner into the Hong Kong interbank market, seding the local overnight interbank offered rate, or Hibor, to a record 13.4%, versus 4% on 8 January.

The People's Bank of China once again also set a slightly higher fixing for the yuan versus the US dollar.

Commenting on last week's carnage in global capital markets and moves by China to let its currency drift lower, Jim Reid at Deutsche Bank on Monday said: "The reality is that constant small devaluations are probably counter-productive as they achieve little economically and cause a negative feedback loop through market turmoil. So it's a delicate game the Chinese are playing and one that we're not privy to their tactics."