China rate cut gives stocks, oil, dollar relief; volatility high

Tue Aug 25, 2015 2:36pm EDT
 
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By Sinead Carew

NEW YORK (Reuters) - Markets rebounded on Tuesday with world stocks, oil prices and bond yields all rising after China cut interest rates and banks' reserve requirements in a bid to kick-start its wavering economic growth.

But while the S&P 500 rose as much as 2.9 percent during Tuesday's session, trading was volatile and its gains had receded to just a 1.3 percent in late afternoon trading.

The dollar turned around Tuesday to rise 1.2 percent against a basket of major currencies as the stimulus boost to China economy renewed focus on U.S. economic data and a potential Federal Reserve rate hike this year.

Global markets had been pummeled on Monday after Chinese shares fell almost 9 percent, prompting investor calls for remedial action from authorities that grew louder overnight after the Shanghai Composite Index slumped.

Monday's selloff was U.S. equities' steepest in four years, and put the S&P 500 and Nasdaq composite indexes in correction territory, topping off its fifth day in a row of declines.

"Spinning a pot on a potter's wheel when it gets out of balance, it starts spinning a lot," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. "This is all price discovery. We had a panic yesterday. As people get back in the market they're questioning what everything is worth. I don't think it's any one thing. What's most important is where its going to close. I think we'll have a really underwhelming close."

Economists said Tuesday's response - a 25 basis point cut in key rates and 50 bps off the reserve requirement rate for large commercial banks - sent a clear signal that Beijing, which has stepped in several times this year to keep China's growth on track, was still willing to intervene.

But while investors showed relief, they were cautious about China's economic outlook and how long it would take for its moves to stimulate growth, said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.   Continued...

 
Pranab Patel, a trader at Belgian KBC bank, reacts on the trading floor at the bank headquarters in Brussels, Belgium August 25, 2015. REUTERS/Yves Herman