China slump fears remain as US investors opt out of global rally.
Nevil Gibson breaks down the global share market downturn on NBR Radio and on demand on MyNBR Radio.
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Chinese authorities have again cut interest rates and loosened monetary policy as its sharemarket continues its steep decline.
But elsewhere stocks rallied after Monday’s 8.5% fall in the Shanghai Composite triggered a global selloff.
Sharemarkets in Asia and Europe rebounded. Wall Street followed suit for most of the day's trading but buyers fled the market just before close, sending the Dow Jones Industrial Average into the red.
Stocks in Shanghai fell another 7.6% on Tuesday before the central bank slashed the official rate and flooded its banking system with new liquidity.
Bank-reserve requirements were reduced by half of a percentage point, effectively adding ¥678 billion (about $US106 billion) to the economy.
This was the second time in two months the People’s Bank of China (PBOC) has acted to prevent what many think could be a hard landing of the world’s second largest economy.
Chinese stocks have lost more than $US1 trillion in value over the past four trading days.
Stocks on Europe and Asia reacted positively. The recovery started in Australia, before the PBOC acted late in the day.
Australia’s S&P ASX 200 rose 2.7%, Hong Kong gained 0.7% and Korea’s Kospi was up 0.9%. Singapore’s FTSE Strait Times was up 1.6% and Taiwan’s Taiex bounced back 3.6%.
On Wall Street, the Dow initially rose as high as 441 points but sentiment reversed late in the session, closing 204.91 points down, or 1.3%, at 15,666.44.
The S&P 500 closed down 25.59 points, or 1.3%, to 1867.62, while the Nasdaq was down 19.76 points, or 0.4%, to 4506.49.
In Europe, the Stoxx Europe 600 index closed 4.2% higher, its biggest one-day gain since September 2011. Germany’s DAX rose 5.0%, France’s CAC 40 climbed 4.1% and the UK’s FTSE 100 closed 3.1% higher.
Oil prices also steadied, with Brent crude 2.3% higher at $US43.68 a barrel.
Currency markets reverse
Currency markets also went into reverse. A host of emerging-market currencies gained against the US dollar, including the South African rand and Russia’s rouble. The euro and the yen weakened against the dollar.
In a statement, the PBOC noted the “big fluctuations” in world financial markets, which prompted it to “make flexible use” of monetary policy tools to ensure steady growth.
China has targeted year-over-year economy growth of about 7% for 2015, which already would be the slowest pace in a quarter century.
But most observers think the actual growth rate is nearer to 5-6% on an annual basis.
A surprise 2% devaluation on August 11 was interpreted as a sign that economic growth is slowing more than Beijing had anticipated.
China has now cut interest rates five times since November and broadly lowered for the third time the amount of deposits banks are required to hold in reserve.
It is rare for the PBOC to simultaneously cut interest rates and banks’ reserve requirements. The last time it made that combo move was June 27, soon after Chinese stocks started to sell off.
