Chinese stock slump weighs on world markets

By Jamie McGeever

LONDON (Reuters) - Stocks fell on Tuesday, with European markets buckling under heavy selling pressure carried over from Asia after Chinese shares slumped 6 percent and emerging market currencies and oil prices remained anchored at historic lows.

A broad measure of Asian stocks fell to its lowest in two years and U.S. stock futures pointed to a lower open on Wall Street SPc1 .

"European equity markets are taking their cues from China, and traders' suspicion is that the second largest economy in the world is heading for a hard landing," said David Madden, market commentator at IG in London.

"The more the Chinese government intervenes, the more traders want to dump stock and head for the exit. The mood in London is that the party is over in China."

With the Federal Reserve also seemingly close to raising U.S. interest rates, developed stock markets struggled to stay out of the red.

The FTSEuroFirst index of 300 leading shares fell 0.3 percent in early trading (FTEU3), Germany's (GDAXI) fell a quarter of a percent and France's CAC 40 (FCHI) was down a third of a percent. Britain's FTSE 100 slipped 0.2 percent (FTSE).

Earlier, China's main Shanghai Composite and Shenzhen 300 indices both lost 6.2 percent (SSEC) (CSI300) as investors drew in their horns and bet that demand in China will cool further, weighing on the trade-reliant region.

The MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) fell 1 percent to its lowest since August 2013. Japan's Nikkei (N225) dipped 0.3 percent.

Thai shares (SET) hit a 1-1/2-year low and the baht fell to six-year low after a bomb blast in Bangkok on Monday killed 19 people, including three foreign tourists.

DOCTOR COPPER

The worries over China came amid a relatively calm day in yuan trading after Beijing fixed the currency's exchange rate at a marginally higher level for the third straight session.

China's central bank on Tuesday set the yuan's midpoint near Monday's closing price at 6.3966 per dollar. But the yuan fell slightly in the spot market to 6.4090 , raising some concerns that it could fall further.

Emerging market currencies were weak across the board. The Turkish lira hit a record low and the South African rand slid to a 14-year low against a firm dollar.

"The weakness of sentiment in emerging market FX is striking," Societe Generale (PARIS:SOGN) currency strategists in a note to clients on Tuesday.

"Fear of a resumption of significant capital outflows if the Fed does raise rates next month as well as fear of further yuan weakness and concern about the sluggish pace of global growth are all delivering persistent broad-based weakness."

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Major currency markets were more stable, with the euro little changed at $1.1085 and the dollar steady against the yen at 124.30 yen .

Strong U.S. housing data on Monday offset the weakest performance of New York regional manufacturing since the Great Recession, leaving many market players scratching their heads on the state of the U.S. economy and when the Fed will begin raising rates.

Markets are still not fully convinced the Fed will raise rates in September, but most investors are betting a rate hike will occur by the end of year. The U.S. 10-year yield was 1 basis point lower on Tuesday at 2.14 percent (US10YT=RR).

Commodity prices remained under pressure from worries about slower growth in China. Brent oil futures LCOc1 fell 0.7 percent to $48.35 per barrel, edging closer to a six-month intraday low of $48.24 touched last week.

U.S. crude futures fell 0.8 percent to $41.49 CLc1 , within 15 cents of making a new six and a half year low.