How governments should respond when stock markets tank

The benchmark S&P index has accumulated 9.95 percent of losses in just five sessions.

“The U.S. economy actually is doing pretty well”. The U.S. employment numbers have been quite good.

Are corrections a normal thing for the market?

Underlining concerns about China, Japanese Finance Minister Taro Aso said on Tuesday he hoped China would take action to stabilise its economy and that Tokyo had no plan for now to unveil its own new economic stimulus package.

European stocks closed off 5.4% after Asian shares slumped to 3-year lows when a three month-long rout in Chinese equities threatened to get out of hand. Markets in Hong Kong, South Korea, Australia and Singapore posted modest recoveries Tuesday after being hit hard a day earlier.

The Dow fell 588.47 points, or 3.6 per cent, to close at 15,871.28.

The pan-European FTSEurofirst 300 index clawed back 1.7 per cent of the more than 5 per cent it had lost as London, Paris and Frankfurt bounced 1.5-1.7 per cent.

Panic selling intensified after the flagship Shanghai Composite Index crashed through the key support level of 3,000 points.

In other markets, the US dollar dropped against most major currencies on Monday as investors lowered their expectation for an interest-rate hike this year.

“Until we have some sign that China and the emerging markets aren’t being sucked into some vortex from which they can’t recover…it is unlikely this selloff will stem”, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Investors are now waiting to see if the “national team” – meaning entities buying stocks for the government – will intervene to prop up the market and if China’s central bank will further loosen monetary policy.

Monday’s global sell-off was triggered by the sharp drop in Chinese stocks, but experts said there was little change in economic fundamentals to justify such a massive global slide. Worries about weaker demand from normally resource-hungry China added to global supply glut concerns. The yield on the benchmark 10-year note fell to 2.01 percent from 2.04 percent. The Shanghai composite, down heavily in recent weeks, slipped by more than 8% and has now lost all its gains for 2015 – despite attempts by Beijing to arrest the slump.

The Australian and New Zealand dollars have risen by more than 0.3% against their US counterpart and by close to 1% against the yen. Trade in a number of stocks was suspended on Monday after the value of stocks fell 10 percent. The FTSE 100 index of leading British shares dropped 4.7 percent.