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Tuesday 21:00 GMT. Sharp swings for oil prices and lingering uncertainty over the outlook for China made for another volatile session in US and European equity markets as the uneasy start to 2016 continued.

Sterling was a feature as weak UK economic data helped drive it to a five-year low against the dollar. Spanish sovereign debt continued to underperform following the formation of a Catalan government at the weekend.

But the main market drivers remained oil and China, as crude prices tested $30 a barrel and intervention by Beijing pushed the onshore and offshore renminbi exchange rates back to parity, according to analysts.

Brent, the international crude benchmark, fell as low as $30.43 a barrel — the cheapest in more than 11 years — before rallying back to $32.38, only to retreat again to settle at $30.86, down 2.2 per cent on the day.

US West Texas Intermediate briefly fell beneath the $30 milestone as it traded in a similar pattern.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that crude prices had dropped about a third since the inconclusive Opec meeting at the start of December at which the cartel stuck with its policy of not constraining output.

“The accelerating sell-off seen during the past week has moved the price closer to levels below where bankruptcies in the energy sector will rise, junk bonds will default and production eventually will be cut,” Mr Hansen said.

“Goldman Sachs has during the past few days been joined by others highlighting the risk of an extension down towards $20 a barrel.

“Production is too high at this moment in history, and when adding the additional worry about the demand prospects from China we have an almost perfect storm of negative fundamentals.”

But the latest developments in China were slightly more reassuring — on the surface at least.

“The People’s Bank of China has drawn a line in the sand and has stepped up efforts significantly to halt the depreciation of the onshore and offshore renminbi versus the US dollar,” said Allan von Mehren, chief analyst at Danske Bank.

“Intervention continued [on Monday] and overnight in the offshore market. As China refrains from adding back the liquidity it drains through the intervention, offshore money market rates shot higher again today.”

The Hong Kong interbank offered rate (Hibor) rocketed to a record 66.8 per cent from an already elevated 13.4 per cent on Monday.

“It makes it very expensive to borrow to short the offshore versus the dollar,” Mr von Mehren said. “The offshore/onshore spread collapsed back to zero in response.”

Despite the more stable tone to the renminbi after its sharp depreciation, analysts remained cautious.

“The heavy-handed approach [by policymakers] will not be without costs,” said Divyang Shah, global strategist at IFR Markets.

“Firstly, it will likely hamper the development of the onshore abroad via the offshore as investors fear a repeat of such an episode; and secondly, it does not deal with the root cause of the crisis that rests on worries over the outlook for the economy.

“Thirdly, currency depreciation expectations remain beyond the speculative community, with households and firms still looking to buy dollars.”

European equity markets appeared to welcome the more stable tone to the Chinese currency, and a modest 0.2 per cent rise for the Shanghai Composite index.

The Euro Stoxx 600 index rose as much as 1.9 per cent before finishing 0.9 per cent higher as oil’s early strength evaporated. In New York, the S&P 500 see-sawed for most of the session before a late rally left it 0.8 per cent higher at 1,938 — off an earlier peak of 1,947.38.

The cautious tone to equity trading for most of the day offered support to US and German government bonds. The yield on the 10-year Treasury note, which moves inversely to its price, was down 4 basis points at 2.11 per cent while that on the 10-year German Bund fell 1bp to 0.53 per cent.

Spain’s 10-year sovereign yield rose a further 3bp to 1.83 per cent after Monday’s 8bp jump. At the weekend Catalonia installed a new regional president, boosting the pro-independence movement, according to analysts.

Meanwhile the dollar was broadly higher, notably against sterling after soft UK industrial production figures were viewed as a further reason for the Bank of England to hold off on raising interest rates.

The pound was down 0.7 per cent at $1.4430, the lowest since mid-2010.

The firm dollar helped push gold down $4 to $1,089 while copper fell 0.7 per cent to $4,355 a tonne in London, a fresh six-year low, amid continued worries about Chinese demand.

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