Asia report: China claws back early losses, closes slightly lower

China once again dominated the day in Asia, with its main index closing down slightly after having recovered from some serious losses early in the session.

The Shanghai Composite Index closed down 0.52% at 2,735.56 - its lowest close since December 2014. The previous lowest close since then was yesterday.

Earlier in the day, the index had dropped as much as 4%. Shanghai was now down 47% since its pre-crash peak in June 2015, and down 23% so far in January.

The index remained within spitting distance of its worst month ever in October 2008, when it lost almost 25%.

Wednesday was the second day of losses for Shanghai, which lost a sizeable 6.4% on Tuesday as investors were worried that capital outflows from the mainland were increasing during the country's slowdown.

Elsewhere in China, the tech-heavy Shenzhen Composite Index fell 0.83%, though the ChiNext - modelled on the Nasdaq - gained a modest 0.17%.

Experts and traders in the country were pointing to evidence that the politburo was moving away from its focus on artificially holding up the markets, something it had done in various ways since the summer crash.

Rather, Beijing was looking at keeping the renminbi stable and nurturing the economy back towards growth.

"In the short term, (Beijing) will most likely continue to inject liquidity in the system via open market operations instead of (reserve requirement ratio) cuts to avoid pressuring further capital outflow", said East Capital Asia portfolio manager Francois Perrin in a note.

He was referring to investor hope that Beijing would cut the level of reserves banks were required to hold ahead of the Chinese New Year, which begins on 7 February. Expectations were diminishing as the extended holiday approached.

The oil market continued its volatile ride, with Brent Crude losing almost 2% to sit at $31.19 by the end of Asian trading. At 1115 GMT, it was down 2.44% to $31.05 per barrel, while West Texas Intermediate was down 3.73% to $30.32.

Energy shares were mixed in the region - up by 2.9% in Hong Kong, but down 2.3% in Australia as the sunburnt country returned from its national holiday.

Outside the People's Republic, the Hang Seng Index rose 1.2% and the Nikkei was up 2.7%. Sydney was playing catch up as traders returned from the Australia Day close, with the S&P/ASX 200 losing 1.2%.

Hong Kong´s Hang Seng China Enterprises index was currently priced for a 'credit event', "which we think is slightly extreme," Michelle Leung, CEO of Xingtai Capital Management, a hedge fund focused on Chinese consumer stocks, told Reuters.

In Wellington, the S&P/NZX 50 remained flat.

The generally improved mood outside of China reflected the good news out of the US overnight, with a raft of American firms reporting better-than-expected numbers and the Dow Jones Industrial Average rising 1.8%.

Investors were also looking to the end of the week, and the Bank of Japan's announcement on whether more quantitative easing would be coming. Japan's controversial easing programme had been widely criticised in recent months.

In currencies, investors were heartened by the steadiness of the renminbi. The offshore yuan, which trades freely, was at 6.6117 to the US dollar.

The Aussie, meanwhile, was stronger against the greenback, down 0.42% to AUD 1.4217. The Kiwi was 0.10% weaker at NZD 1.5404, and the yen strengthened 0.09% to JPY 118.31.