China stocks dive on tax hike, knock Asia markets

SINGAPORE, May 30 (Reuters) Chinese stocks slid nearly 6 percent on Wednesday before paring losses after China tripled a share-trading tax in a bid to cool its red-hot market, knocking Asian markets lower but failing to trigger the rout some feared.

The yen held gains after rebounding from a record low against the euro, as the Chinese move prompted some investors to cut back risky positions in so-called carry trades financed by borrowing the Japanese currency.

China's Ministry of Finance raised stamp duty on share trades to 0.3 percent from 0.1 percent in what was seen as the latest attempt to curb speculation in a market that had risen more than 60 percent so far this year.

''This is mildly negative in the short-run,'' said Tat Auyeung, fund manager at Apex Capital Management in Hong Kong.

''But in the long run, it's good, because it shows the Chinese government is not trying to put too many restrictions on the market -- they're just trying to take some liquidity out of the market.'' The benchmark Shanghai Composite Index dived 5.7 percent at the start of trade, but had regained some of the lost ground by 0235 GMT and was down around 3.5 percent.

Shares of brokerages were hardest hit on fears the tax rise would shrink market turnover, with CITIC Securities falling 8.6 percent.

Tokyo's Nikkei eased 0.2 percent in the morning session, while MSCI's index of regional shares outside Japan was down 0.7 percent.

Beijing's cooling measure prompted fears of a repeat of late February, when a steep slump in Chinese stocks triggered a global equities sell-off.

In the foreign exchange markets those jitters prompted some scaling back of carry trades, where investors borrow low yielding currencies such as the yen to buy assets offering higher returns.

Carry trades are vulnerable to reduced risk appetite, often prompting a sharp appreciation of the yen when investors reverse such positions.

RISK APPETITE The Japanese currency jumped against the dollar and euro as share trading opened in Shanghai, but quickly trimmed gains to trade a little firmer on the day.

''While we believe that the announcement may cause a wobble in risk appetite, it is unlikely to significantly derail market trends,'' currency analysts at Morgan Stanley said in a note to clients.

The euro edged down to 163.45 yen after reaching a fresh record high of 164.29 yen the previous day as comments by European Central Bank officials suggesting more euro-zone rate increases prompted investors to buy the single currency.

The dollar bought 121.50 yen down 0.1 percent from late U.S.

trading. The dollar remains in sight of a three-month high of 121.89 yen hit last Friday.

Regional stock markets fell across the board but the losses were not dramatic, with benchmarks in Australia, Hong Kong HSI> , Taiwan, South Korea and Singapore falling between 0.5 and 0.8 percent.

''This is not like the China shock in February,'' said Kim Joong-hyun, an analyst at Goodmorning Shinah Securities in Seoul.

''The markets are showing that the impact from China this time will not be long-lasting.'' China's midnight announcement, which came late in the U.S.

trading day, limited Wall Street gains on Tuesday. The Dow Jones closed 0.1 percent higher, although the Nasdaq rose 0.6 percent on a wave of takeover news in the tech sector.

Oil prices steadied, after sliding on Tuesday amid easing concerns about Nigerian supply disruptions and a slew of refinery restarts in the United States that signalled a recovery in gasoline stocks ahead of the summer holiday ''driving season''.

London Brent crude currently seen as the most accurate benchmark of world prices, rose 14 cents to .27 a barrel.

Gold traded near 8 an ounce, up around SINGAPORE, May 30 (Reuters) Chinese stocks slid nearly 6 percent on Wednesday before paring losses after China tripled a share-trading tax in a bid to cool its red-hot market, knocking Asian markets lower but failing to trigger the rout some feared.

The yen held gains after rebounding from a record low against the euro, as the Chinese move prompted some investors to cut back risky positions in so-called carry trades financed by borrowing the Japanese currency.

China's Ministry of Finance raised stamp duty on share trades to 0.3 percent from 0.1 percent in what was seen as the latest attempt to curb speculation in a market that had risen more than 60 percent so far this year.

''This is mildly negative in the short-run,'' said Tat Auyeung, fund manager at Apex Capital Management in Hong Kong.

''But in the long run, it's good, because it shows the Chinese government is not trying to put too many restrictions on the market -- they're just trying to take some liquidity out of the market.'' The benchmark Shanghai Composite Index dived 5.7 percent at the start of trade, but had regained some of the lost ground by 0235 GMT and was down around 3.5 percent.

Shares of brokerages were hardest hit on fears the tax rise would shrink market turnover, with CITIC Securities falling 8.6 percent.

Tokyo's Nikkei eased 0.2 percent in the morning session, while MSCI's index of regional shares outside Japan was down 0.7 percent.

Beijing's cooling measure prompted fears of a repeat of late February, when a steep slump in Chinese stocks triggered a global equities sell-off.

In the foreign exchange markets those jitters prompted some scaling back of carry trades, where investors borrow low yielding currencies such as the yen to buy assets offering higher returns.

Carry trades are vulnerable to reduced risk appetite, often prompting a sharp appreciation of the yen when investors reverse such positions.

RISK APPETITE The Japanese currency jumped against the dollar and euro as share trading opened in Shanghai, but quickly trimmed gains to trade a little firmer on the day.

''While we believe that the announcement may cause a wobble in risk appetite, it is unlikely to significantly derail market trends,'' currency analysts at Morgan Stanley said in a note to clients.

The euro edged down to 163.45 yen after reaching a fresh record high of 164.29 yen the previous day as comments by European Central Bank officials suggesting more euro-zone rate increases prompted investors to buy the single currency.

The dollar bought 121.50 yen down 0.1 percent from late U.S.

trading. The dollar remains in sight of a three-month high of 121.89 yen hit last Friday.

Regional stock markets fell across the board but the losses were not dramatic, with benchmarks in Australia, Hong Kong HSI> , Taiwan, South Korea and Singapore falling between 0.5 and 0.8 percent.

''This is not like the China shock in February,'' said Kim Joong-hyun, an analyst at Goodmorning Shinah Securities in Seoul.

''The markets are showing that the impact from China this time will not be long-lasting.'' China's midnight announcement, which came late in the U.S.

trading day, limited Wall Street gains on Tuesday. The Dow Jones closed 0.1 percent higher, although the Nasdaq rose 0.6 percent on a wave of takeover news in the tech sector.

Oil prices steadied, after sliding on Tuesday amid easing concerns about Nigerian supply disruptions and a slew of refinery restarts in the United States that signalled a recovery in gasoline stocks ahead of the summer holiday ''driving season''.

London Brent crude currently seen as the most accurate benchmark of world prices, rose 14 cents to $68.27 a barrel.

Gold traded near $658 an ounce, up around $2 on the day, as dealers awaited minutes of the most recent Federal Reserve rate-setting meeting for clues on the direction of the U.S.

currency, a key factor for dollar-denominated commodities.

Benchmark Japanese government bond 10-year yields eased 1.5 basis points to 1.735 percent.

REUTERS SKB PM0933 on the day, as dealers awaited minutes of the most recent Federal Reserve rate-setting meeting for clues on the direction of the U.S.

currency, a key factor for dollar-denominated commodities.

Benchmark Japanese government bond 10-year yields eased 1.5 basis points to 1.735 percent.

REUTERS SKB PM0933