Stocks find fleeting relief in Evergrande deal; Fed looms

Stocks found relief on Wednesday after teetering developer China Evergrande said it would be able to pay a coupon on one of its bonds, easing some market jitters, however, the Federal Reserve's looming policy decision kept investors cautious. China fell on its first day of trade after a two-day holiday.

However, a cash injection from the People's Bank of China kept falls far smaller than feared with blue chips off 0.7% and Shanghai Composite reversing losses to trade up 0.3%.That weighed on MSCI's broadest index of Asia-Pacific shares outside Japan, which fell 0.3%, however, Australia was higher. Japan's Nikkei dropped 0.6%. Hong Kong markets were shut.

Evergrande's main unit, Hengda Real Estate, said it had settled interest payments due Thursday on a yuan bond with investors, which helped lift sentiment and trim losses. "I think the market is still a little bit cagey," said Rob Carnell, Asia-Pacific head of research at ING in Singapore.

"It's Evergrande today, who will it be tomorrow? That's probably why we haven't seen a substantial and perhaps prolonged rally as a result of this," he said. The news sent S&P 500 futures, U.S. Treasury yields and the Australian dollar higher, before shedding some of those gains as traders were left with few details and as Evergrande made no mention of dollar bond interest also due on Thursday. S&P 500 futures were last up 0.2%. European futures inched up 0.3%. After rising, safehaven 10-year U.S. Treasury yields eased back to flat at 1.3311%.

Globally, markets had also already started to calm as analysts downplayed the threat of Evergrande's troubles becoming a "Lehman moment" and setting off a financial crisis.

European markets rallied on Tuesday and on Wall Street the S&P 500 fared little worse than flat, sitting about 4% below a record made early in the month. Focus now seems to be shifting to trying to gauge Beijing's sofar muted response amid worries about the consequences for an economy that is slowing and financial markets reeling from months of disruptive and radical reform. "(The) Evergrande debacle is further stoking concern over the fallout from China's broadening crackdown," analysts at Rabobank said in a note to clients, pointing out new rules on everything from online gaming to developers debt levels.

"As a consequence, Evergrande can perhaps be seen not so much as a potential crisis trigger but rather a symptom of a broader policy shift which threatens Chinese growth as politics dominate economic considerations." In currency markets, the Aussie rose slightly, having given up some of its early-session blip while the safehaven yen was a tad weaker.

Moves were capped ahead of Wednesday's Fed meeting, however, and the dollar was flat against the euro, with the risk of a hawkish Fed supporting the dollar. Most analysts think the Fed will not go into detail about its tapering plans but say risks lie in board members' "dot plot" of rates projections.

European stock markets opened sharply higher on Wednesday as worries over the Evergrande crisis in China started to ease. The real estate company said a payment due on Thursday, for an onshore renminbi-denominated bond, had "already been resolved through off-exchange negotiations".

Traders are hopeful that the company might reach an arrangement with its international bondholders. China's central bank also injected 120bn yuan (£13.6bn) into the banking system to strengthen the financial system amid concerns over the debt crisis at

Evergrande. In London, the FTSE 100 (^FTSE) advanced more than 1% after opening, while the CAC (^FCHI) climbed 1.1% in Paris and the German DAX (^GDAXI) was 0.6% higher. Mining stocks were among the top FTSE risers on the back of the news, including Antofagasta (ANTO.L), Anglo American (AAL.L), and BHP Group (BHP.L).

They had declined earlier in the week, on concerns that Evergrande's debt default would hurt the wider Chinese economy, cutting demand for copper, iron ore, coal and other commodities. Across the pond, S&P 500 futures (ES=F) were up 0.6%, Dow futures (YM=F) climbed 0.7%, and Nasdaq futures (NQ=F) were 0.4% higher as trade began in Europe.