Chinese markets tumbled at the open Tuesday, but quickly erased early losses as Asian markets recovered from a sharp selloff in the previous session.

The Shanghai Composite tacked on 0.95 percent after initially trading down as much as 3.1 percent. The smaller Shenzhen Composite was off 0.2 percent after initially falling as much as 5 percent, while the CSI300 erased its opening losses of as much as 2.58 percent to trade up 1.4 percent. In Hong Kong, the Hang Seng Index added 0.56 percent.

In Monday's trading session, Chinese equities plunged after feeble manufacturing surveys revived concerns over the country's economic slowdown. The CSI300 dipped down 7 percent in afternoon trade Monday, resulting in trade being suspended for the day. The Shanghai Composite had tumbled 6.8 percent and the Shenzhen Composite plummeted 8.1 percent Monday.

Goldman Sachs said in a note Tuesday that other factors cited as explanations for the sell-off include market concerns over near-term liquidity, capital outflows, monetary tightening and policy stimulus inaction.

During yesterday's sell-off, China tested out its new system-wide circuit breakers linked to the benchmark CSI300 index, dominated by large cap stocks. When there is a 5 percent decline in the CSI300 index, trading is halted for 15 minutes. When that index drops 7 percent, the market closes for the day. Hong Kong does not have a circuit breaker.

Deutsche Bank said in a note Monday that the top 50 largest weighted constituents on the CSI300, which are mostly financials, property, and industrial names, accounted for 42 percent of the 7 percent loss yesterday. They are, the note suggested, more sensitive to macroeconomic developments and policy dynamics, and hence, "macro conditions and policymakers could have a greater influence on market trading."

The bank also noted that the 5 percent/7 percent stop-trading threshold in China is comparatively lower than other markets, adding to volatility and possibly heightening concerns on market liquidity. In the U.S., if the S&P 500 moves reach 7 and 13 percent, trade is halted for 15 minutes and is then completely stopped when it hits the 20 percent mark in either direction.

Reuters reported that China's securities watchdog, the China Securities Regulatory Commission, said Tuesday that it would continue to hone its circuit-breaker mechanism, but that its use on Monday had helped calm markets and protect investors' interests. This was at odds with the views of most market commentators, who blamed the circuit breaker for exacerbating panic selling by retail investors.

Before trading started, the People's Bank of China set Tuesday's yuan fix at 6.5169 against the dollar, compared with Monday's fix of 6.5032, representing a 0.21 percent increase.

Other Asian equities traded mixed Tuesday with the Australian ASX 200 index down 51 points, or 0.97 percent, at 5,219.5. In Japan and South Korea, markets erased early losses to trade positively, with the Nikkei 225 up 0.28 percent at 18,502.8 and the Kospi up 0.61 percent at 1,930.52.

Oil prices saw some uptick during Asian trade with the US West Texas Intermediate (WTI) futures up 10 cents, or 0.27 percent, at USD 36.85 a barrel. The global benchmark Brent was up 12 cents, or 0.32 percent, at USD 37.32 a barrel. In U.S trading hours, U.S. crude was at USD 36.76 a barrel and Brent at USD 37.24 a barrel.

In Australia, resource plays remained under pressure with shares of Rio Tinto down 1.14 percent. BHP Billiton erased morning losses to trade up 0.22 percent while other miners remained mostly in the red. Energy stocks saw losses between 1.25 and 3 percent as a result of falling oil prices overnight, while gold miners traded mixed, with Newcrest up 2.83 percent.

Electronics retailer Dick Smith, which had asked for a trading halt Monday, announced it had appointed voluntary administrators after it was unable to secure short-term funding. Its stock was de-listed only two years after it made its debut on the Australian stock exchange.

Meanwhile, the Australian dollar traded lower at 0.7184 against the U.S. dollar.

Japanese blue chip stocks traded mostly lower, with the likes of Toyota and Honda falling more than 1 percent each. The dollar-yen pair, which fell below the 120-benchmark against the dollar in the previous session, was at 119.50 on Tuesday morning, with the Japanese currency likely boosted by safe-haven flows.

In South Korea, Samsung Electronics shares erased losses to trade up 017 percent. In the previous trading session, the share was down over 4 percent after the company's chief executive, Kwon Oh-hyun, warned employees of challenging conditions ahead, due to low global growth and greater competition. Samsung is expected to issue earnings guidance for the fourth quarter ended December on Friday.

CapitaLand shares were up 0.3 percent in morning trade.

Arthur Lang, CapitaLand chief financial officer, noted that the company, which has around 50 percent of its assets in China, had guided that it expected 14 billion yuan in residential sales on the mainland in 2015. While he told CNBC he couldn't provide the exact figure as full-year results weren't released yet, "if we achieve the guided 14 billion yuan, it would be the highest ever we've achieved in our 14 years there."

Elsewhere, low-cost carrier Tiger Airways saw its shares up 9.76 percent after reports said Singapore Airlines was revising its initial offer price for the airline from an initial SUSD 0.41 a share to SUSD 0.45 a share. Singapore Airlines shares traded up 0.18 percent.

Overnight, US and European equity markets were also hammered on renewed concerns of a global economic slowdown and increased tensions in the Middle East. The drop in Chinese stocks also put pressure on sentiment.

The Dow Jones Industrial Average closed 276 points, or 1.5 percent, lower at 17,148.94, while the S&P 500 shed 31.28 points, or 1.5 percent, at 2,012.66. The Nasdaq Composite was down 104.32 points, or 2 percent, at 4,903.09. The Dow had been down more than 2.5 percent in intraday trade before recovering.

In Europe, major markets all ended more than 2 percent down.

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First Published:Jan 5, 2016 7:42 AM IST