China stocks swung wildly early Friday before staying in positive territory and ending the day up 2 per cent, after regulators suspended a newly-minted circuit breaker mechanism in a bid to calm panicky investors.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2.0 per cent, to 3361.56, while the Shanghai Composite Index gained 2.0 per cent, to 3,186.41 points.
During the first week of 2016, China stocks lost roughly 10 per cent, their worst weekly performance since the market crashed in the summer.
On Thursday night, China's securities regulator announced a suspension of circuit breakers after just four days operating the mechanism, saying it had not worked as anticipated and was doing more bad than good.
Analysts said the move injected life into the market.
"The market is back to normal. Investors can buy and sell as they wish," said Tian Weidong, analyst at Kaiyuan Securities.
"Under the circuit breaker mechanism, the market was suffocated."
China stocks rose across the board on Friday, with the resources sector surging more than 6 percent and energy shares jumping over 5 per cent.
Analysts attributed the rise in those sectors to Beijing's efforts to reduce excess capacity, which investors believe will lead to industry consolidation and benefit major listed players.
Chinese markets have had a turbulent start to 2016, buffeted by the PBOC's lower yuan fixings against the dollar, two days of stock exchange suspensions, weak factory and service sector surveys and worries about looming share sales by major stakeholders once a ban on such sales expires.
With the circuit breaker deactivated late on Thursday, the CSI300 index was up 1.75 per cent at 3,351.97 points in morning trade on Friday, while the Shanghai Composite Index was up 1.6 per cent at 3,175.38 points.
The CSI300 had lost around 12 per cent in the first four trading days of 2016, giving up all the gains made in 2015.
The circuit breaker, which only came into effect on January 4, came under fire for kicking in too soon with its initial pause in trading and then encouraging a rush to sell before a second trigger halted the day's trade permanently.
"The market is back to normal," said Tian Weidong, analyst at Kaiyuan Securities.
"Investors can buy and sell as they wish. Under the circuit breaker mechanism, the market was suffocated."
To calm currency markets, the PBOC set its daily midpoint rate for the yuan at 6.5636 per dollar prior to market open, firmer than Thursday's fix at 6.5646 and closing quote of 6.5929.
Under China's currency regime the yuan is allowed to deviate two per cent either side of the midpoint.
The yuan firmed in early trade, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue at pace.
The onshore yuan recovered to 6.5887 in morning trade, while the offshore yuan was about 1.4 per cent weaker at 6.6840, narrowing a spread that reached around 2 per cent a day earlier, which made the central bank's currency management task more complicated.
"While the market was left with uncertainty on how far the yuan will fall, the Chinese central bank's action (the stronger fix on Friday) was taken as a signal that it does not intend to keep allowing the yuan to fall," said Yoshinori Shigemi, a market strategist at JPMorgan Asset Management.
After its sharply lower fix on Thursday, the PBOC had later sown confusion by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 per cent that took it to a record low of 6.7600 per dollar.
That left dealers at a loss to know what the central bank's aims were.
"Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one," said DBS bank.
"The market's message was loud and clear, that more clarity and less flip-flopping is needed going forward."
The previous days' depreciation of the yuan also came in for international criticism, with Mexico's finance minister warning it could trigger a cycle of competitive devaluations, and US Republican presidential candidates accused Beijing of trying to gain a trade advantage by making their exports cheaper.
Global stocks had also swooned in response to the turmoil, but Asian shares were calmer on Friday, with Japan's Nikkei 225 up 0.4 per cent and Hong Kong's Hang Seng up 0.9 per cent.
Markets will remain wary of China's currency goals, as mixed messages come from the central bank, which has repeatedly said it sees no basis for the currency to depreciate, while steering it gradually lower.
Sources told Reuters on Thursday that the PBOC is under increasing pressure from policy advisers to let the currency fall quickly and sharply, by as much as 10-15 per cent, as its recent gradual softening is thought to be doing more harm than good.
A flurry of Chinese economic data in the coming weeks is likely to show activity in the world's second-largest economy continued to slow in December, adding to concerns about its economic outlook for 2016.
Exports and imports are likely to have declined at a more rapid rate, a Reuters poll showed, while industrial output growth is expected to remain near recent lows.
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