Markets gain ground on easing China credit crunch fear

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UK and European markets have opened higher this morning after concern that China could be heading into a new credit crunch started to calm.

The FTSE 100 was 0.96 per cent higher at 6,160.63 at 0947 BST while the Euro Stoxx 50 was up 1.77 per cent to 2,588.30. This follows the Dow Jones and S&P 500 closed ahead in the US, while the Hang Seng also gained ground in Hong Kong.

Gains were prompted after the People’s Bank of China moved to ease the country’s worst cash crunch in a decade.

The central bank said it will provide financing to some institutions to stabilise interbank lending rates and plans to use short-term liquidity operations and existing loan-facility tools to keep markets steady.

As a result, the cost of locking in China’s interest rates fell for a fourth day running while money-market rates dropped, restoring a degree of confidence in the country’s financial health.

Banque Bonhote & Cie chief investment officer Jean-Paul Jeckelmann told Bloomberg: “The situation in China is slowly beginning to be the main risk for the markets.

“The Chinese central bank’s liquidity pledge has calmed markets in the short term, but the picture is not that clear in the medium term. The first leg of the correction is close to over and the markets should be more stable going into month end.”