Stocks rally as Evergrande worries ease

Wall Street rallied Wednesday, with the Dow and S&P 500 snapping a fourday losing streak, as investors took in an optimistic policy announcement from the Federal Reserve and encouraging news from a Chinese mega developer on the verge of collapse.

At the closing bell, the Dow Jones industrial average picked up 338.48 points, or 1 percent, to settle at 34,258.32. The S&P 500 jumped 41.45 points, or nearly 1 percent, to close at 4,395.64. The tech-heavy Nasdaq added 150.45, or nearly 1 percent, to end at 14,896.85.

Investors have been keeping close watch on Evergrande Group, which announced overnight that it had “resolved” a $36 million, yuan-backed interest payment due Thursday through negotiations. It remains unclear whether China’s second-largest real estate firm can or will pay the balance, or how it will handle two more fast-approaching interest payments: A $83.5 million, dollar-backed payment that’s also due Thursday, and a $47.5 million payment on Sept. 29. Both bonds would default if Evergrande can’t settle the interest payments within 30 days.

The company is overloaded with $300 billion in debt and has been cut off by Beijing regulators from doing any more borrowing. Economists fear a collapse could set off a contagion, sending shock waves through global markets and depressing Chinese buying power and hammering home values.

Investors also are monitoring how Beijing handles the crisis. Chinese President Xi Jinping has made limiting financial risk one of the “three tough battles” of his policy agenda, but experts are skeptical that regulators would allow such a major financial institution — Evergrande has offshoots in wealth management, hospitality, mineral extraction and manufacturing — to fail.

Overseas markets mostly trended higher. The Hang Seng in Hong Kong rose 0.5 percent, and the Nikkei in Tokyo lost 0.7 percent. The pan-European Stoxx and Germany’s DAX climbed about 1 percent, while London’s FTSE added 1.5 percent.

On Wednesday, Federal Reserve Chairman Jay Powell signaled that the central bank will likely ease support for markets if the economy continues to improve as expected. Officials also indicated higher interest rates could be coming in 2022.

Fed leaders, wrapping up their two-day policy meeting, also suggested that further progress could warrant the pullback of the sprawling bond-buying program that has buoyed markets through much of the pandemic. They also lowered their expectations for the unemployment rate later this year and reined back their estimates for the economy’s overall growth.

“There is still a lot of uncertainty for 2022 that could result in a faster or slower tapering and or the start of an interest rate hiking cycle,” said Nancy Davis, founder of Quadratic Capital Management.

Through aggressive monetary policy, the Fed has helped prop up the U.S. economy as the coronavirus crisis ravaged businesses and ushered in a short-lived recession. But a faster-thanexpected path to recovery has prompted calls for central bankers to ease their support.