US market gains wiped out in final-hour trading as China jitters remain

In a topsy-turvy day on Wall Street, shares on the U.S.'s benchmark index dropped rapidly in late afternoon trading, wiping out earlier gains that had been wrought on the back of moves by China to shore up its turbulent market.

Stocks surged early in the day, rebounding from a big sell-off on Monday after the Chinese central bank said it was cutting interest rates to stimulate its economy and head off further falls in the Shanghai Composite index

But having gained close to 600 points in early trading, the Dow Jones industrial average closed lower Tuesday after falling sharply in the final hour of trading.

The Dow ended off by 204.78 points, or 1.3 percent, to 15,666.44 The Standard & Poor's 500 index dropped 25.60 points, or 1.4 percent, to 1,867.62. The Nasdaq composite dropped 19.76 points, or 0.4 percent, to 4,506.49.

Disappointment in Wall Street was not reflected by investors in Europe, where 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 initial 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.

An initial rally Tuesday turned in the afternoon amid lingering concerns over that the slowdown in China could hobble global growth despite the Chinese central bank move.

(It's) just investor confusion," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "They are trying to figure out what the slowdown in China means to the global economy," he said.

Al Jazeera and wire services