Markets rally in Asia, Europe as oil prices rise

Stock markets in Europe and Asia rose and oil prices jumped on Wednesday after Chinese trade data cooled concerns over the world's second biggest economy, steadying money and currency markets in Shanghai and Hong Kong.

Japan's Nikkei index jumped 2.6 per cent and Europe's main markets gained after China reported exports dipped just 1.4 per cent in U.S. dollar terms in December, compared to forecasts of an eight per cent drop.

A four per cent fall in imports was also much smaller than many had feared, but the reaction was not uniformly positive. Prices for copper — of which China is the world's biggest consumer — rose, but iron ore prices fell and Shanghai shares themselves fell between one and two per cent.

Traders said the mood on many markets was still shaky after an extremely volatile start to 2016, driven by worries over conflict in the Middle East, China's finances and the fallout from extremely low oil prices.

"I am generally positive on the global outlook but the basis for that is being sorely tested right now," one London-based investment manager said. "Sentiment is very fragile."

Asian markets saw their first solid rally of the year, suggesting that some believe Beijing has done enough to gain control of the yuan for now. Overnight interest rates in Hong Kong, jacked up to 94 per cent on Tuesday, were back near four percent.

More stability in China would also leave the way clearer for the U.S. Federal Reserve to raise interest rates this year and the brighter tone drove the dollar around half a per cent higher against the euro and yen. Australia's dollar, often a proxy for China on major currency markets, gained 0.8 per cent.

"The China story has dominated so far this year and it's nice not to be talking about other things such as the Fed," London retail currency broker FxPro's chief economist, Simon Smith, said. "But this topic is likely to remain a dominant force in 2016, more so than in the past. This return of risk appetite we've seen so far this week may be temporary."

Investors also pulled cash out of European bond markets in favour of stocks and the latest round of some 35 billion euros of government debt set to be sold in the eurozone this week also pushed up bond yields.

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