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.

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