Shanghai stocks tumbled on Tuesday, extending the worst daily plunge for eight years after worries about China's faltering economy sent world financial markets reeling, but other Asian markets bounced back from heavy early losses.
A slump in Chinese shares sparked panic across global markets on Monday, with the Dow Jones Industrial Average in New York initially diving more than 1,000 points, or six percent, before trimming its losses, while European stocks fell sharply.
The dollar and commodity prices plumbed fresh multi-year lows in New York, with US oil finishing below $40 a barrel for the first time in six years as fears of a global slowdown hit commodity markets.
But Asian bourses cast off heavy early falls Tuesday to post gains by late morning, with Tokyo up 1.10 percent by the break after closing at a six-month low in the previous session.
Hong Kong was 1.62 percent higher by the break while Sydney added 2.30 percent, Seoul climbed 1.32 percent and oil led a recovery among commodities as dealers took a breather after Monday's rout.
"Our bottom line is that the world's still not a bad place," David McDonald of Credit Suisse told Bloomberg News.
"It's just a case of whether you would want to rush in now or perhaps wait until it settles down a bit more."
China's benchmark index in Shanghai opened down 6.41 percent before recovering slightly to stand 4.33 percent off by the break.
Slowing growth in Asia's largest economy has long kept investors on edge but China's shock devaluation of the yuan two weeks ago, following a string of weak economic data, has riled world markets.
Fears Beijing could taper a massive share market rescue package helped push Shanghai down 8.49 percent on Monday, wiping out the year's gains in its biggest daily slump since February 2007.
Capital Economics said investors had been "overreacting about economic risks in China", arguing that the "the collapse of the equity bubble tells us next to nothing about the state of China's economy".
Chinese shares have been on a roller-coaster ride after a year-long debt-fuelled rally collapsed in mid-June, prompting the government to unleash a vast support package that has included using state vehicles to support the market.
In the latest move, Beijing said on Sunday it would allow the state pension fund, which had 3.5 trillion yuan of assets at the end of 2014, to buy stocks.
But mainland investors are worried that support could start to taper and they are now waiting to see if the "national team" will intervene further, or China's central bank will loosen monetary policy.
The People's Bank of China, the central bank, said on Tuesday it had injected 150 billion yuan ($23 billion) into the money market to ease tight liquidity.
"With such an unreasonable sell-off, they (regulators) should at least encourage the market and step up," Haitong Securities analyst Zhang Qi told AFP.
The dollar remained weak at 118.78 yen, little changed from 118.51 yen in New York trade Monday, but dramatically weaker than 122.06 yen seen in US trading on Friday.
The euro stood at $1.1570 and 137.50 yen in Tokyo, compared with $1.1606 and 137.55 yen in New York overnight.
Commodity prices recovered after Monday's rout, although oil remained under pressure as dealers expect a global supply glut to continue for the coming years.
US benchmark West Texas Intermediate (WTI) for October delivery was trading at $38.67 in mid-morning Asian trade after closing at $38.24 a barrel on the New York Mercantile Exchange.
Brent North Sea crude for October, the international benchmark, was at $43.13 a barrel after closing at $42.69 a barrel in London, its lowest level since March 2009.
Safe-haven gold traded at $1,153.60, slightly down from $1,154.00 late on Monday but still some seven percent higher than its low this month.