Stocks, oil, dollar extend gains after China cuts rates

A file picture of the People's Bank of China facade. PHOTO: EPA
A file picture of the People's Bank of China facade. PHOTO: EPA

LONDON (REUTERS) - Stocks, oil prices and safe-haven bond yields rose on Tuesday as a tentative market rebound picked up pace after China cut interest rates and banks' reserve requirements to kick-start its wavering economy.

The dollar motored ahead against most major currencies, rising 1.4 per cent against the yen and 0.65 per cent against its currency basket as the stimulus boost to the world's number two economy gave impetus to the case for a near-term interest rate hike in its biggest.

Global markets were pummelled on Monday, with Chinese shares falling 8 per cent, prompting investor calls for remedial action from authorities that grew louder overnight after the Shanghai Composite Index slumped a further 8 per cent.

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 high-powered growth on track, was still willing to intervene.

But as asset prices eased back following the initial euphoria, some questioned whether the measures would help. "Investors have been waiting for them to act and they have,"said Kallum Pickering, senior economist at Berenberg. "Is this sufficient? It might not be but it does set a precedent that they are engaged and looking to prevent any further declines."

As the previous day's rush for safety reversed, German Bund yields also rose with the 10-year benchmark up 11 basis points at 0.69 per cent. Yields on safe-haven U.S. Treasuries were also up.

By 1200 GMT, Wall Street was indicated up 3.6 per cent , the pan-European FTSEurofirst 300 index gained 4.4 per cent and MSCI's benchmark emerging stocks index rose 2.4 per cent - its biggest jump in two years after seven days of back-to-back falls.

"The PBOC (central bank) is doing what it has to do but it is very likely it is not enough so more will have to be done,"said Wei Yao, China economist for Societe Generale in Paris.

The stock market gains in Europe, which recouped the bulk of the 5 per cent-plus lost the previous day when around 450 billion euros (S$733.7 billion) was wiped off the FTSEurofirst 300's value, were also supported by takeover news.