Asian stocks mostly up, mirroring Shanghai rebound

Chinese shares clawed back some lost ground Tuesday as investors looked for bargains in metals stocks following the previous session's steep losses.

The bounce in Shanghai helped some other major Asian markets to end higher after falling into negative territory during the session. Japanese stocks nudged slightly higher in modest volumes, while Indian stocks jumped in afternoon trading as investors covered their short sales.

"Given how overheated Chinese stocks had been, this correction was inevitable, and some would say it was necessary," Tachibana Securities analyst Kenichi Hirano said.

China's Shanghai Composite ended up 1.4% at 2910.88 a day after it suffered the biggest percentage loss of 2009. It seesawed through the session as analysts remained divided over the future course of the market.

"The rally in equity prices has disguised what are still large imbalances in the real economy. And, as equity prices fall, these imbalances will find themselves under more scrutiny, especially after July's economic data disappointed," Royal Bank of Scotland economist Ben Simpfendorfer wrote in a report.

But Jing Ulrich, head of China equities and commodities at J.P. Morgan said that "in the event of further correction, the Chinese authorities will be prepared to put a floor under the stock prices." Beijing may do that by slowing measures to absorb excess liquidity and by eliminating stamp duty on equity transactions, she added.

Stocks which lost heavily in the previous session led Tuesday's rebound, with Yunnan Copper rising 5.6% in Shenzhen and Aluminum Corp. of China /quotes/comstock/13*!ach/quotes/nls/ach (ACH 28.48, -0.34, -1.18%) rising 4.2% in Shanghai.

Steel giant Baoshan Iron & Steel gained 3% after Nomura International upgraded the stock to buy from neutral, citing a better operating outlook.

Elsewhere in Asia, Japan's Nikkei 225 Average gained 0.2%, Hong Kong's Hang Seng Index advanced 0.8%, Australia's S&P/ASX 200 slipped 0.2%, Taiwan's Taiex stumbled 2.1%, South Korea's Kospi inched up 0.2% and New Zealand's NZX 50 slid 0.5%.

"A pause equals taking profits. The trading world is rightly locking in some of the outperformance of [assets associated with] risk and I expect this not to be a one-day event. This may well go on for weeks, yet I don't expect Wall Street down 2.0% every night," said Southern Cross Equities director Charlie Aitken.

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