Local shares almost clawed themselves out of the red yesterday after positive news from China reversed the pessimism of most of the day.
Investors were in a dour mood after factory gauges showed a weakening manufacturing sector in China, but hopes of further government stimulus measures sparked some late bargain hunting.
It allowed the Straits Times Index, which had fallen as much as 17.32 points earlier in the day, to regain some ground to close down 1.75 points or 0.05 per cent at 3,191.04.
The Chinese central bank has room to cut interest rates further and China's US$3.69 trillion (S$5.1 trillion) of foreign-exchange reserves and relatively low national government debt levels mean it has the ammunition for fiscal stimulus.
Chinese regulators now require short-sellers to wait one day before returning the borrowed shares, a move that will push out day traders and help stabilise the market, IG market strategist Bernard Aw said.
Back home, Noble Group continued to be the most actively traded counter as short-covering drove the stock up nearly 28 per cent or 13 cents to 60 cents, with 263.2 million shares traded.
"Traders are covering back shorts just in case the company surprises on the upside for its second-quarter earnings, and ahead of the long SG50 weekend," said remisier Alvin Yong.
Positive sentiment from the rebound in Chinese equities also spilled over into S-chip plays, which dominated the most actively traded list.
Stratech Group jumped 14.5 per cent or 0.9 cent to 7.1 cents, with 108.6 million shares traded, while Chinese Global skyrocketed 38.7 per cent or 1.2 cents to 4.3 cents with 77.7 million shares traded.
Debao Property soared 54.5 per cent or 1.8 cents to 5.1 cents, with 72.1 million shares changing hands, and Qingmei surged 43.8 per cent or 0.7 cent or 2.3 cents, with 64.3 million shares traded.
After falling 12 per cent, or 30 cents since last Thursday to a year low of $2.20 on Monday, Global Logistic Properties rebounded 6.8 per cent or 15 cents to $2.35, with 60.7 million shares changing hands.
"The stock rebounded after going ex-dividend on Monday. The stock attracted bargain hunting after dropping more than its dividend payout of 5.5 cents a share," Mr Yong said.
Meanwhile, looming interest rate hikes continued to weigh on sentiment after the latest round of encouraging economic data from the United States.
"Personal income managed to beat expectations while core personal consumption expenditure (PCE) - the Fed's chosen yardstick for inflation - rose from a year ago," Phillip Futures investment analyst Howie Lee said. "Given the importance that the Fed views PCE, it was a victory for dollar bulls yesterday. Everything still depends on this Friday's US non-farm payrolls."