* Shanghai volatility takes Asia stocks on wild ride
* Late China rebound pulls region off early lows
* European, U.S. stocks poised to recover after Monday drop
* Australian dollar recovers despite wobbly stock markets
* Fears that global recovery may be weak continue to weigh
By Kevin Plumberg
HONG KONG, Aug 18 (Reuters) - Asian shares clawed their way
back from early lows on Tuesday following wild swings in
Shanghai, as investors worried whether more bouts of profit
taking will spell the end of the bull market that emerged from
the financial crisis.
Major European stock futures <STXEc1> pointed to a slight
rebound after cash markets posted their biggest daily drop in
six weeks on Monday. U.S. stock futures <SPc1> also showed some
life, rising 0.4 percent, suggesting markets would open higher
later.
Pressured by worries that the global economy may take
longer than expected to recover and disheartened by mounting
losses in Shanghai, U.S. stocks posted their biggest one-day
fall in seven weeks on Monday, with profit taking also hitting
commodities. []
Chinese shares remained highly volatile on Tuesday, with
the Shanghai composite index <> rising more than 1 percent
by midafternoon after earlier hitting a two-month intraday low
and dragging most Asian bourses into the red.
The index suffered its biggest single-day drop in nine
months on Monday, with investors haunted by fears that China is
slowly clamping down on easy money policies and aggressive bank
lending.
The drop in China's market had a domino effect on other
markets, fueling worries among some analysts that rallying
asset prices have run too far ahead of economic fundamentals
and weak earnings prospects.
However, one of the main drivers of the equity rally in
Asia, piles of money that monetary authorities pumped into
banking systems, may still have a supportive effect in coming
weeks, even with asset prices extended.
"History tells us when markets rise as much as they did in
the second quarter, they should come down. It's hard to say
where the floor is, but I don't think it's far from where we
are now," said Mark Matthews, Asia Pacific strategist with
Fox-Pitt Kelton in Hong Kong.
"This is a liquidity-driven bull market. It's not a market
being driven by valuations."
Most Asian share markets recouped early losses as the
Shanghai index rebounded and investors hunted for bargains
after the recent selloff.
Japan's Nikkei share average <> finished up 0.2
percent on some late session buying of technology shares, while
the MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> was up 0.3 percent.
The ex-Japan index tumbled 3.7 percent on Monday, its
biggest daily decline since March 30.
It is still up 67 percent since March 9, when a global
equity rally began and signalled a marked improvement in
investors' comfort with taking risks for bigger returns.
The Shanghai index's intraday 30-day volatility has jumped
to the highest since April 7 in the last three weeks, though
still remains well below levels reached in the days after the
collapse of Lehman Brothers last September.
EVERBRIGHT SOARS
"I think macroeconomic indicators in general suggest that
things are improving globally and there's no reason to be so
pessimistic, but there's not a lot we can do about market
sentiment as long as stocks keep on falling," said Noritsugu
Hirakawa, a strategist at Okasan Securities in Tokyo.
Profit taking has knocked the Shanghai index down around 18
percent in the last two weeks after it jumped more than 90
percent since the start of the year.
But the IPO boom in China gained pace, even if broader
investor demand was cooling. Shares of China brokerage
Everbright Securities Co <601788.SS> rose as much as 42 percent
in their debut in Shanghai before slightly paring early gains.
The tight relationship that the Australian dollar had had
with equities loosened some, with the currency up 0.4 percent
to US$0.8240 <AUD=> after minutes from the Reserve Bank of
Australia meeting underscored that policy would be tightened as
a recovery took hold. []
The U.S. dollar and the yen both retained broad gains on
uncertainty over the strength of a global economic recovery.
The ICE Futures U.S. dollar index <.DXY>, which tracks the
dollar's value against a basket of six currencies, was largely
unchanged, not far from a two-week peak of 79.514 hit on
Monday.
The lack of follow-through selling in equity markets pushed
down U.S. Treasuries.
The benchmark 10-year note edged down 6/32 in price to
yield 3.50 percent <US10YT=RR>, up about 3 basis points from
late New York trade on Monday when the yield fell to 3.47
percent, its lowest since July 22.
U.S. crude oil futures also steadied, rising 0.4 percent to
$67.05 a barrel <CLc1> after falling to a two-week low on
Monday.
(Additional reporting by Elaine Lies in TOKYO)
(Editing by Kim Coghill)
