Asia hit by tumbling China

Chinese stocks slumped more than 6 percent on Wednesday 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 broad rout some had feared.

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

Investors were anxiously awaiting the reaction of European and U.S. markets, with London spread betters forecasting Britain's FTSE 100, France's CAC 40 and Germany's DAX to open down around 0.5 percent.

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

Tokyo's Nikkei closed down 0.5 percent, while MSCI's index of regional shares outside Japan was down 1 percent at 0615 GMT.

"The decline today is 100 percent influenced by China," said Soichiro Monji, chief strategist at the equity management department of Daiwa SB Investments in Tokyo.

"In theory it shouldn't matter if Chinese stocks plunge, but markets are at high levels and investors are very aware of the downside risk."

The benchmark Shanghai Composite Index was down 6.2 percent, having fallen as much as 7.4 percent earlier. Shares of brokerages were hardest hit on fears the tax rise would shrink market turnover, with CITIC Securities tumbling by the 10 percent daily limit.

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 as risk aversion swept financial markets.

Regional stock markets fell almost across the board but the losses were not as dramatic. Australia's stocks benchmark lost 1.2 percent and Taiwan shares fell 0.4 percent.

Indexes in Hong Kong and Singapore were both down more than 1 percent at their midsession breaks, but South Korea's KOSPI crept into positive territory near the end of the trading day, ending up 0.1 percent at a record close.

"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."

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.

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.

"The foreign exchange market is swinging between hope and despair due to developments in Chinese shares," said Kosuke Hanao, head of forex sales at HSBC in Tokyo.

The euro eased 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 around 121.60 yen at 0615 GMT, little changed from late U.S. trading. The dollar remains in sight of a three-month high of 121.89 yen hit last Friday.

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.

Benchmark Japanese government bond 10-year yields fell 2 basis points to 1.730 percent.