Nikkei climbs, but China shares take another leg lower

Asia markets were mostly higher on Wednesday after Wall Street surged overnight on a bounce in oil prices and positive earnings news, shrugging off the recent global rout, at least temporarily. China shares were volatile, erasing most early losses in late trade.

"Swinging from depressive slumps to manic rallies, markets remain volatile," Vishnu Varathan, an analyst at Mizuho Bank, said in a note Wednesday.

China's market is likely to remain the region's sticky wicket for hopes the long global rout will end. The Shanghai Composite ended down 0.50 percent, or 13.65 points, at 2,736.13 after tumbling as much as 4.10 percent earlier in the session. That followed the index's worst day on Tuesday since the suspension of the circuit breaker rule in early January, closing down 6.4 percent, hitting its lowest level since December 2014. The Shenzhen Composite dropped 0.83 percent, or 14.27 points, to 1,700.153 after trading down as much as 5.62 percent earlier in the session.

Amid concerns about slowing economic growth and depreciation of the yuan, shares on the mainland got an additional bit of bad news Wednesday: China's industrial profits fell 4.7 percent on-year in December, declining for a seventh month.

The Shanghai Composite is down more than 20 percent since its most recent high of 3,651.76 on December 22, leaving it in a "bear within a bear" market. The index is off more than 47 percent from its 52-week high of 5,166.35, set June 2015.

"Chinese markets look like they will continue to sell off until their last day of trading before Chinese New Year on February 5," Angus Nicholson, market analyst at spreadbettor IG, said in a note Wednesday. "There is a good chance that Chinese equities may find their cyclical bottom in the next week and half if the current pace of selloff continues." He expects the Shanghai Composite might eventually bottom around the 2300-2400 level.

But the rest of the region shrugged off the continuation of China's selloff. Hong Kong's Hang Seng Index tacked on 1.02 percent, or 191.65 points, to 19,052.45 after dropping 2.5 percent Tuesday.

Japan's Nikkei index climbed 2.72 percent, or 455.02 points, to end at 17,163.92 after closing down more than 2 percent on Tuesday. Across the Korean Strait, the Kospi tacked on 26.18 points, or 1.40 percent, to end at 1897.87.

Bucking the trend, Australia's shares ended lower, with the S&P ASX 200 shedding 1.20 percent, or 60.164 points, to 4946.40 after being closed Tuesday for the Australia Day holiday, missing a regional market sell-off.

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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In Australia, AWE surged 56.94 percent after announcing it agreed to sell its 10 percent interest in U.S. shale project Sugarloaf to Carrier Energy Partners for $190 million before taxes. AWE said the proceeds would be used to repay debt, leaving the company in a net cash position.

But energy counters were largely lower, with Woodside shedding 1.63 percent and Santos off 2.70 percent.

Oil bounces in U.S. session

Oil plays around the region were mixed, however. While WTI crude oil settled up 3.66 percent, well off session highs of over $32 a barrel, in overnight U.S. trade, it gave back some of those gains in Asian hours. WTI was down 1.24 percent at $31.06 a barrel in Asia trade, while Brent shed 0.35 percent to $31.69 a barrel.

In Japan, Inpex tacked on 4.04 percent, but South Korea's S-Oil fell 4.32 percent. Hong Kong-listed Cnooc and Petrochina were up 3.85 and 3.20 percent respectively. On the mainland, Shanghai-listed China Oilfield dropped 0.74 percent.

It isn't clear how long any oil rally can sustain.

"Supply continues to outpace demand and a 2.5 percent gap between the two has opened up," DBS said in a note Wednesday. "If producers stopped lifting output today – a big if – and production ran perfectly sideways, the gap wouldn't be eliminated until late-2017. In the meantime, inventories would continue to swell and downward pressure on prices would almost surely persist."

On the upside, Australia's gold-related shares climbed, with Alacer Gold up 2.24 percent and Newcrest tacking on 3.21 percent. Gold futures hit their highest since early November in overnight trade, with futures for February delivery settling up $14.90 at $1,120.20 an ounce.

Australia's dollar also got a boost after data showed the consumer price index (CPI) rose 1.7 percent on-year in the fourth quarter, slightly above expectations for a 1.6 percent rise from a Reuters poll. But the data showed inflation remains under control, leaving the Reserve Bank of Australia space to cut rates at its next meeting. The Australian dollar was fetching as much as $0.7041 after the data, up from around $0.6989 before the release.

"Although its a solid print, I'm not sure the bounce is sustainable for an extended run, as I maintain external factors, including China and global growth, will continue to weigh on investor sentiment with regards to the Aussie," Stephen Innes, senior foreign-exchange trader in Asia for Oanda, said in a note Wednesday. "Nonetheless, the surprise upside on the Aussie CPI could prove short term positive."

Tech in focus

Apple suppliers were in focus after Apple reported fiscal first quarter earnings that beat analyst estimates, but came in below expectations on revenue and iPhone sales. Taiwan-listed Hon Hai was down 0.26 percent in volatile trade and AU Optronics shed 1.02 percent. Among Tokyo-listed Apple suppliers, Japan Display was up 2.92 percent and Asahi Glass added 2.30 percent.

In South Korea, Samsung Electronics, which both supplies and competes with Apple, rose 3.34 percent.

Shares of LG Electronics were up 5.47 percent. Nomura said in a note Wednesday that the company's fourth quarter results were "sound," with operating profit of 349 billion won around 9 percent above market expectations, supported by the home appliance business. But the bank remained concerned the company's smartphone business is mired in long-term losses on growing price competition.

In Japan, Suzuki Motor surged 11.35 percent despite Reuters reporting that both the company and Toyota Motor had denied a Nikkei business daily report that it was discussing a tie-up with Toyota Motor. Toyota shares were up 3.80 percent.

The Dow Jones industrial average closed up 282.01 points, or 1.78 percent, at 16,167.23. The S&P 500 closed up 26.55 points, or 1.41 percent, at 1,903.63, with energy leading all 10 sectors higher. The Nasdaq composite closed up 49.18 points, or 1.09 percent, at 4,567.67.

Despite Tuesday's gains, the major averages were still lower by almost 7 percent or more for the year so far and more than 10 percent below their 52-week intraday highs, in correction territory.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1