HONG KONG Chinese stocks and the yuan rose in early trading Friday in a respite from their early year meltdown, after authorities overnight removed a controversial mechanism that was blamed for triggering a stampede that has wiped $1.1 trillion off mainland stock markets this week.

HONG KONG Chinese stocks and the yuan rose in early trading Friday 

in a respite from their early year meltdown, after authorities overnight removed a controversial mechanism that was blamed for triggering a stampede that has wiped $1.1 trillion off mainland stock markets this week. 

The Shanghai Composite Index SHCOMP, +2.27%   was last up 1.5% at 3170.66 amid choppy trading, with the benchmark rising as much as 3% and falling by 2.2% at different stages.

Chinese markets were suspended from trading on Monday and Thursday, after they fell by the 7% limit allowed in the new circuit-breaker system ushered in this year. The rushed implementation of the mechanism and its abrupt removal is hurting investor confidence.

“Any credibility authorities gained in the fourth quarter is completely gone again,” said Oliver Barron, head of research at investment bank North Square Blue Oak Ltd. “I’m most disappointed at how badly the securities regulator is communicating what is going on.”
“It feels like they have lost control, they don’t have a plan,” he said.
Analysts said a key problem with the circuit-breaker mechanism was that the threshold at which it triggered trading suspensions was too low. In the 60 trading days between June 8 and Sept. 9 during China’s summer stock market rout, Chinese stock markets fluctuated up or down by 5% a dozen times, or every five trading days, according to research by Noah Holdings, a Chinese wealth manager.
Despite concerns about the Chinese regulator’s rapid flip-flop on the circuit breaker, some said it was right to suspend the system after it interrupted trading twice this week.
“The decision to remove it was sensible, and it is populist decision making,” said Andrew Xia, Hong Kong research director at Noah.

Others said the suspension of the circuit breaker may slow down losses but wouldn’t reverse the decline in Chinese equities. “[The stock market’s] volatility is endogenous, and is a reflection of heightened earnings risks during [the] intense reform and restructuring” that China’s economy and markets are undergoing, said Hao Hong, managing director of research at Bank of Communications Co. in Hong Kong. China’s central bank meanwhile guided the yuan stronger on Friday, further helping to calm the markets somewhat. The Chinese currency had reached its lowest level in five years on Thursday. Its rapid decent this year helped spark an equities selloff first in China then globally.
The yuan was last at 6.6727 to the U.S. dollar in the offshore market where it trades freely, strengthening from a five-year low of 6.7511 Thursday. Its last trade yesterday was at 6.68.
Onshore, where the yuan can trade within 2% either side of the authorities’ guidance, the currency was last at 6.5905, also strengthening from a five-year low the previous day, when it reached 6.5956.
Most shares in the rest of Asia were recovering after trading in the red earlier in the morning.
The Hang Seng Index HSI, +0.80%   was up 0.9%, the Nikkei Stock Average NIK, -0.39%   was up 0.3%, although South Korea’s Kospi SEU, +0.70%   fell 0.2% and the S&P/ASX 200 XJO, -0.39%   was down 0.5%.

 
That marked a rebound from global selling overnight.
The Dow Jones Industrial Average fell nearly 400 points, as investors were shaken by Thursday’s 7% fall in Shanghai. Fears about China also spread to commodity markets, including U.S.-traded oil and base metals like copper and nickel.
Overnight, the Stoxx Europe 600 fell 2.2% after earlier declining as much as 3.6%.
In Asia, the Nikkei Stock Average, at 17,798.82, is at its lowest in roughly three months.
The Japanese yen, last down 0.4% against the U.S. dollar, has risen 2% this week as investors seek havens. The currency’s strength weighs on Japanese exporters that repatriate earnings from overseas and pay costs at home.

Gold, also considered a haven asset, was last down 0.4% at $1103.4 a troy ounce. It has gained 4.1% this week.
Brent oil prices were last up 1.7% at $34.32 a barrel. U.S.-traded oil fell 2.1% to $33.27 a barrel overnight.