Asian shares plunge on China rout, yen rallies

By Lisa Twaronite

TOKYO (Reuters) - Asian shares tumbled to a 1 1/2-year low on Wednesday and the safe-haven yen rallied as Chinese stocks struggled to pull out of a tailspin, shaking investors already rattled by Greece's debt crisis.

The drop in China extended a savage correction that has clipped 30 percent off Chinese shares since mid-June, threatening a new blow to the country's already slowing economy despite a slew of market support steps from Beijing.

MSCI's broadest index of Asia-Pacific shares outside Japan wallowed at its lowest level since February 2014, extending its early losses after Chinese shares opened sharply lower. It was last down 2.7 percent.

Japan's Nikkei stock index fell 2 percent to a seven-week low, roiled by both China's dent to regional sentiment and the stronger Japanese currency.

"Today is all about China, with Greece in the background now that it's been given a new deadline," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.

"Shanghai's early losses were like a cliff-dive, which had a huge impact on investor sentiment."

Shanghai's benchmark composite index was off its session lows but still down 3.9 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen slipped 4.8 percent.

Over 500 China-listed firms announced trading halts on the Shanghai and Shenzhen Exchange on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market - as companies seek shelter from the rout.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

U.S. stock futures were down 0.7 percent, suggesting that the gloomy mood might continue throughout the global session even after Wall Street's major indexes closed higher on Tuesday.

INVESTORS FEAR IMPACT OF GREECE CRISIS

Though the Greek debt crisis was on the back burner, it continued to smoulder. Euro zone members gave Athens until the end of this week to propose reform measures in order to secure the funding it needs to stay in the euro zone.

Investors fear Greece's financial woes, if it fails to reach a deal with its lenders, could spread to other southern European nations.

These concerns grew when the European Central Bank increased the haircuts on the collateral it demands from Greek banks even as it maintained its emergency liquidity funding for them.

The euro was down about 0.2 percent on the day at $1.0989, after falling as low as $1.0916 on Tuesday, its lowest since June 2.

The euro skidded 0.5 percent to 134.15 yen, after falling to a six-week low of 133.52 on Tuesday.

The Australian dollar, often used as a liquid proxy for China plays, slumped to a six-year low against the greenback of $0.7389.

The dollar shed about 0.4 percent to 122.06 yen as the Greek and Chinese uncertainly heightened the Japanese currency's safe-haven appeal, though it remained above its six-week low of 121.700 yen hit on Monday.

The yield on the 10-year U.S. Treasury note last stood at 2.215 percent, below its U.S. close of 2.231 percent on Tuesday, when it dropped to a five-week low of 2.185 percent.

U.S. crude erased early gains and dropped 0.7 percent to $51.99 a barrel, in the wake of an 8 percent fall between Monday and Tuesday which pulled the contract to levels last seen in April. Brent crude was down 0.5 percent on the day at $56.56 a barrel.

(Additional reporting by Samuel Shen, Pete Sweeney, Brenda Goh and Adam Jourdan; Editing by Simon Cameron-Moore)