SHANGHAI, Aug 25 — Shanghai stocks tumbled today, 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 yesterday, with the Dow Jones Industrial Average in New York initially diving more than 1,000 points, or six per cent, 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 US$40 (RM170.096)  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 today to post gains by late morning, with Tokyo up 1.10 per cent by the break after closing at a six-month low in the previous session.

Hong Kong was 1.62 per cent higher by the break while Sydney added 2.30 per cent, Seoul climbed 1.32 per cent and oil led a recovery among commodities as dealers took a breather after yesterday'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 per cent before recovering slightly to stand 4.33 per cent 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 per cent yesterday, 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".

Step up

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 today it had injected 150 billion yuan (US$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 yesterday, but dramatically weaker than 122.06 yen seen in US trading on Friday.

The euro stood at US$1.1570 and 137.50 yen in Tokyo, compared with US$1.1606 and 137.55 yen in New York overnight.

Commodity prices recovered after yesterday'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 US$38.67 in mid-morning Asian trade after closing at US$38.24 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for October, the international benchmark, was at US$43.13 a barrel after closing at US$42.69 a barrel in London, its lowest level since March 2009.

Safe-haven gold traded at US$1,153.60, slightly down from US$1,154.00 late yesterday but still some seven per cent higher than its low this month. — AFP