Global markets rebounded Tuesday after China’s central bank cut its key interest rate to support growth in the world’s second-largest economy. Earlier, China’s main stock index closed sharply lower for a fourth day.
European markets recovered almost all their losses from Monday, with most rising at least 4 percent, while U.S. stocks were expected to open higher and oil prices traded higher.
Hours after China’s 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 — the central bank swung into action.
It cut its interest rates for the fifth time in nine months in a renewed effort to shore up economic growth. The 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 rate cut is intended to drive down financing costs to benefit rural small- and medium-sized enterprises and support the development of the real economy, according to the People’s Bank of China.
Weaker-than-expected economic indicators since July showed that the country’s economic growth momentum has resumed its downward trend after a short-term rebound in May and June.
Last month, industrial output growth slowed to a three-month low of 6 percent. Exports contracted more than 8 percent year-on-year. Property construction and investment decelerated further. Infrastructure investment meanwhile stumbled to 16 percent after June’s short-lived revival.
The Caixin Purchasing Managers’ Index dropped to 47.1 in August from 48.2 in July, the lowest level since March 2009.
Rob Subbaraman, an economist at Nomura Securities, said: “It would appear that China’s structural headwinds, including overcapacity and over-leverage, are once again wearing on growth”.
The scope to ease policy is far from exhausted for China, he said. “We do not rule out a big-bang stimulus package of measures – monetary, fiscal and stock market stabilization – to generate a maximum signaling effect”.
Tokyo’s Nikkei 225 earlier closed down 4 percent after sliding 4.6 percent 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.
In morning trading in Europe, France’s CAC-40 jumped 4.3 percent after tumbling 5.4 percent Monday while Germany’s DAX was up 4.1 percent after dropping 4.7 percent the day before. Britain’s FTSE 100 was 3.3 percent higher.
Dow Jones and S&P 500 index futures were both up 3.7 percent, an indication the U.S. market is set to open higher.
Wall Street had a stomach-churning day Monday, when the Dow plunged more than 1,000 points at one point before finishing down 588.40 points, or 3.6 percent, at 15,871.35. The Standard & Poor’s 500 index slid 77.68 points, or 3.9 percent, to 1,893.21, and is now in “correction” territory, Wall Street jargon for a drop of at least 10 percent from a recent peak. The last market correction was nearly four years ago.
In currency markets, the dollar rose to 120.12 yen from Monday’s 118.69 yen. The euro fell to $1.1494 from the previous session’s $1.1591
Oil rebounded from Monday’s steep declines.
Benchmark U.S. crude gained $1.02 to $39.26 per barrel in electronic trading on the New York Mercantile Exchange. The contract plunged $2.21 on Monday to close at $38.42.
Story compiled with information from Xinhua, China Daily, and the Associated Press