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U.S. stocks surge after China cuts interest rates

August 25, 2015

Stocks surged Tuesday morning on Wall Street, erasing some of the heavy losses of a day earlier, after China cut interest rates to try to boost the world's second-largest economy.

Traders around the world welcomed the move, which came after a dayslong global sell-off triggered by fears of a slowdown in China.

"They're relieved by what China has done," said Chris Gaffney, president of EverBank World Markets, and are telling themselves: "Maybe it's time to get back in there."

Investors also got some encouraging news from a survey indicating that U.S. consumer confidence rebounded this month. A separate report showed sales of new U.S. homes bounced back in July.

The Dow was up 333 points, or 2.1 percent, to 16,204 shortly after noon. The Standard & Poor's 500 index gained 43 points, or 2.2 percent, to 1,936. The NASDAQ composite rose 141 points, or 3.1 percent, to 4,668.

The 10 sectors in the S&P 500 all moved higher, with technology leading the pack, up 3.6 percent. Best Buy recorded the biggest gain in the index, climbing $4.13, or 14.1 percent, to $33.42, after the home electronics chain reported better-than-expected results for the quarter.

The Dow sank more than 588 points on Monday, while the S&P 500 index fell to more than 10 percent off its recent peak, in what investors refer to as a "correction." The previous market correction was nearly four years ago.

The three indexes have closed lower five days in a row, with the Dow falling nearly 1,700 points in that time.

China cut its interest rates for the fifth time in nine months in a renewed effort to shore up economic growth. The central bank also increased the amount of money available for lending by reducing the reserves banks are required to hold.

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 said that while Tuesday's actions by the central bank may calm the stock market turmoil for now, the country faces a long period of uncertainty.

"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 5 percent, while France's CAC-40 rose 4.1 percent. The FTSE 100 index of leading British shares gained 3.1 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 7.6 percent, on top of Monday's 8.5 percent loss.

Tokyo's Nikkei 225 also closed lower, sliding 4 percent. But other markets in Asia posted modest recoveries. Hong Kong's Hang Seng index rose 0.7 percent, while Sydney's S&P ASX 200 gained 2.7 percent.

Oil rebounded some from Monday's steep declines. Benchmark U.S. crude gained $1.36 to $39.61 per barrel in New York.

U.S. government bond prices fell, pushing up the yield on the 10-year Treasury note to 2.10 percent.

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