China acts to boost economy after stocks crash

China has sought to calm its panic-stricken stock markets by cutting interest rates and loosening constraints on bank lending after a second day of plunging share prices.

Stocks had surged earlier in the session after Chinas central bank cut interest rates and the Conference Board reported consumers view of the U.S. economy improved this month.

The market opened higher on Tuesday, led by a 5.1% rise in RSA Insurance Group and a 2.9% increase in the share price of Lloyds Banking Group, as it pared some of the losses suffered the previous day.

On the bourses of London, Frankfurt, and Paris, at least, Black Monday was followed by Turnaround Tuesday, as indices rose by 3.5 to 4.5 percent.

The question for investors is whether the PBOC’s move Tuesday will restore-or further hurt-confidence in Beijing’s handling of the economy and markets.

Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners, agreed Monday’s market moves had gone too far. “As such, there is a need to use monetary policy tools … to help support a stable and healthy development of the economy”.

The bank also lowered the amount of cash banks must set aside, known as the reserve requirement ratio, by 50 basis points.

The central bank’s move was broadly welcomed by economists. “But ultimately, fixing the economy is more important than fixing the stock market and advancing reforms is critical”.

The volatility of the market which started in June diluted about Dollars four trillion worth of capital and forced about 20 million investors to leave the stock market after heavy losses.

The blue-chip index was last up more than 3% at 6090.71 points.

The global sell-off has been driven by fears that China’s slowing growth means less business for everyone else.

“It is not unusual to see stock market corrections”.

After decades of rapid growth, China is running out of steam.

It 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.

This week’s steep declines have taken Chinese stocks into negative territory for the year to date, although Leland Miller, president of China Beige Book global, pointed out that Chinese equity markets have shown little correlation with the real economy – either on the way up or the way down. In short, China wants to lower its fallout in the markets, likely both at home and elsewhere in its trading partner nations. S&P 500 jumped back sharply from 1830 area to trade as high as 1950 yesterday, while Yen pared its massive gain from 116 to 120 area.