US stocks surge after China cuts rates
U.S. stocks surged in early trading Tuesday after mainland China’s central bank cut its key interest rate in a bid to boost growth in the world’s second-largest economy.
The move erased some of the stock market’s heavy losses from a day earlier when concerns over a slowdown in China’s economy rattled global markets and knocked down the Dow Jones industrial average by more than 588 points.
The Dow was up 349 points, or 2.2 percent, to 16,221 as of 10:18 a.m. EDT in the U.S., while the Standard & Poor’s 500 index gained 45 points, or 2.4 percent, to 1,938. The Nasdaq composite rose 137 points, or 3 percent, to 4,664.
The three indexes closed lower three days in a row as investors wrestled with uncertainty over increased signs of a slowdown in China’s economy and the timing of a long-expected interest rate hike by the U.S. Federal Reserve.
Investors also welcomed encouraging government data indicating that U.S. consumer confidence rebounded this month. A separate report showed sales of new U.S. homes bounced back in July.
China cut its interest rates for the fifth time in nine months in a renewed effort to shore up economic growth. The Chinese central bank lowered the benchmark rate for a one-year loan by 0.25 percentage points to 4.6 percent and the one-year rate for deposits by a similar margin to 1.75 percent.
The bank also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5 percentage points.
The move came as Beijing appeared to be abandoning a strategy of having a state-owned company buy shares to stem the market slide.
Analysts say that while Tuesday’s actions by the Chinese central bank may calm the stock market turmoil for now, China faces a long period of uncertainty that will create more volatility.
“The Chinese economy is going to be on this bumpy road for a while and it will have ebbs and flows that will no doubt have a serious impact on the global economy,” said Kamel Mellahi, professor at the Warwick Business School.
“What we are seeing now is a dress rehearsal of things to come.”
European markets recovered almost all their losses from Monday.
Germany’s DAX jumped 4.3 percent, while the CAC-40 in France rose 3.9 percent. The FTSE 100 index of leading British shares rose 2.6 percent.
China’s central bank took action hours after the country’s main stock index closed sharply lower for a fourth day. The Shanghai stock index slumped to close 7.6 percent lower — adding to Monday’s 8.5-percent loss and taking the benchmark to its lowest level since Dec. 15.
Tokyo’s Nikkei 225 also closed lower, sliding 4 percent after sliding 4.6 percent on Monday.
But other markets in Asia posted modest recoveries. Hong Kong’s Hang Seng index rose or 0.7 percent, while Sydney’s S&P ASX 200 gained 2.7 percent and Seoul’s Kospi index and Singapore’s Straits Times index also rose.
U.S. government bond prices fell, pushing up the yield on the 10-year Treasury note to 2.09 percent.
Trader Peter Tuchman works on the floor of the New York Stock Exchange, Tuesday, Aug. 25.