Global markets cheer as China cuts borrowing costs amid Shanghai slide

Global markets rebounded Tuesday, shrugging off further falls in China's main stock index and taking comfort in a decision by Beijing to cut borrowing costs to support growth in the world's second-largest economy.

U.S. stocks surged in early trading after China's central bank cut its key interest rate in an effort to stimulate growth and arrest the slide of share at the Shanghai Composite index.

The move was cheered by investors around the world, with bourses recouping 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 more than 588 points.

The Dow was up 349 points, or 2.2 percent, to 16,221 in early trading, 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.

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.

The global rally came on news that Beijing had cut borrowing costs. 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.

China cut its interest rates for fifth time in nine months in a renewed effort to shore up economic growth in the world's second-largest economy. The central bank said the benchmark rate for a one-year loan will be cut by 0.25 percentage points to 4.6 percent and the one-year rate for deposits will fall 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. There have been no signs of large-scale purchases by the China Securities Finance Corp. during the past week.

“The fear is that the Chinese economy is slowing at an alarming pace and that the domestic policy makers have fallen well behind the curve,” said an analyst at Credit Agricole CIB in a report.

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; Seoul's Kospi index and Singapore's Straits Times index also rose.

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 120.26 yen from Monday's 118.69 yen. The euro fell to $1.1461 from the previous session's $1.1591.

In times of financial stress, the euro and yen are bought as investors unwind positions in trades that entail higher risk but also higher potential return.

“The Chinese rate move has boosted risk appetite,” SEB currency strategist Richard Falkenhall told Reuters. “But it's too early to say ‘buy the dollar’ given all the sharp moves that have happened over the past few days. Longer term, we remain bullish on the dollar.”

Oil also rebounded from Monday's steep declines.

Benchmark U.S. crude gained $1.31 to $39.55 per barrel in electronic trading on the New York Mercantile Exchange. The contract plunged $2.21 on Monday to close at $38.42. 

Wire services