Investors dumped Asian shares and emerging market bonds on Wednesday as a global sell-off that started in China gathered steam after Wall Street stocks shed more than 3 percent.
But investors drew comfort from signs that selling momentum had -- at least for the moment -- abated. Shanghai stocks staged a late rally, while other Asian markets rose above early lows and U.S. stocks futures stood firm.
Spooked by Tuesday's collapse in Chinese stocks and weak U.S. manufacturing data, investors fled to safety, pouring money into less-risky bonds and sending the Dow Jones Industrial Average down in its worst slide in point terms since the aftermath of the September 11, 2001 attacks.
"The real question is whether New York will be able to rebound tonight. If it doesn't, investors are going to start looking for the reasons behind all this selling," said Tatsutyuki Kawasaki, director of equities trading at Kaneyama Securities.
Worried Chinese investors flocked to brokerages on Wednesday, even as Shanghai's main index rose more than 4 percent in late session trade after opening 1.34 percent lower.
"Yesterday, I lost over 10,000 yuan ($1,290)," said a 37-year-old former company driver in Shanghai surnamed Li. "If this trend continues, I'll sell all my shares at the end of the year."
Other Asian indexes on Wednesday mirrored the U.S. decline:
"It's wrong to see this as a buying opportunity. Stock markets could fall more even if Chinese shares are rebounding. The aversion to risk that is pounding global markets is not going to disappear overnight," said Chung Kyun-sik, chief investment officer at Uris Investment Advisors in Seoul.
Asian credits recovered after an initial sell-off, but were still weaker.
U.S. crude oil dropped more than 1 percent, while spot gold fell to its lowest level in a week before rebounding.
U.S. stock index futures signaled a slightly higher opening on Wednesday as markets appeared ready to shake off declines. Standard & Poor's 500 Index futures were up 2.7 points, while Dow Jones industrial average futures were 17 points higher and Nasdaq 100 futures were unchanged.
Most markets in Southeast Asia saw their biggest one-day drops since the aftermath of the 9/11 attacks, with Singapore's Straits Times Index falling almost 6 percent before halving those losses at midafternoon.
"I honestly think it's a tad of an overreaction to China and a tad of an overreaction to what happened to the U.S. durable goods orders," said Hans Kunnen, head of investment market research at Colonial First State in Sydney.
"The global economic environment is still relatively firm, as we've seen in our own reporting season, corporate earnings are strong...and many people will see this as a buying opportunity."
Fears of rising volatility in financial markets prompted investors to buy yen as they unwound risky so-called carry trades that had involved borrowing in the Japanese currency.
The yen logged its biggest daily jump against the dollar in a year on Tuesday before retreating slightly on Wednesday.
Carry trades involve borrowing in a low-yielding currency -- for instance, Japanese interest rates are 0.5 percent -- and using the funds to invest in a higher-yielding currency. As traders have closed out trades in the higher-yielding markets, they have bought back yen to pay off the original borrowings.
Traders said Japanese importers and foreign investors took advantage of the yen's recent gains to repatriate funds, giving the dollar a mild boost on Wednesday.
Many in the market had warned that global investors were inadequately pricing in risk. Before this week, emerging market bond spreads, which measure the gap against ultra-safe U.S. Treasuries, were at record lows. In other words, investors were not demanding a hefty yield premium even for such risky assets.
U.S. Treasuries fell in Asia on Wednesday as market players sought to lock in profits on the market's big gains a day earlier when the plunge in global stocks sent investors fleeing to safe-haven government bonds.
"It will be a temporary increase in risk aversion -- we will see a correction and it may last for a very short period. We look at it as a good opportunity to reload on the high-yield universe in Asia," said Scott Wilson, sovereign credit analyst at UBS.
On Tuesday, Chinese stocks plunged nearly 9 percent, erasing about $140 billion of value in their biggest fall for a decade, amid fears that authorities would crack down on the speculation that had driven shares to record highs.
The tumble came a day after the main index jumped to an all-time high, bringing its gains for this year to 14 percent. The market soared 130 percent last year, making it the world's best-performing major market.