US stocks surge in opening trade; Dow +2.2%

Traders on the floor of the New York Stock Exchange on Aug 24, 2015.
Traders on the floor of the New York Stock Exchange on Aug 24, 2015. PHOTO: AFP

NEW YORK (AFP, BLOOMBERG) - US stocks surged in opening trade on Tuesday, joining European equities in rallying one day after worries about China pummelled global financial markets.

Four minutes into trade, the Dow Jones Industrial Average was up 2.22 per cent, while the broad-based S&P 500 gained 2.16 per cent.

The tech-rich Nasdaq Composite Index rose 3.03 per cent.

Standard & Poor's 500 Index clawed back some of its losses from a global rout that sent the benchmark into a correction amid the steepest two-day drop since the financial crisis.

It rose to 1,932.04 at 9:45 a.m. in New York, after closing Monday 11 per cent below its May all-time high, meeting the definition of a correction for the first time since 2011.

The Dow Jones Industrial Average added 309.26 points to 16,180.26.

The Chicago Board Options Exchange Volatility Index slid 21 per cent, the most since October 2013.

"I'm not surprised to see the market move up, given the magnitude of the selloff we've seen the past four days and the moves made by China after the market close in terms of cutting rates," said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. "The question is whether these levels will hold, and the only guarantee is another day of volatility."

Index futures contracts briefly extended gains earlier after China cut interest rates for the fifth time since November and lowered the amount of cash banks must set aside in an attempt to stem the country's biggest stock market rout since 1996 and a deepening economic slowdown.

After a day of wild swings, the S&P 500 lost 3.9 per cent Monday to cap a 7 per cent two-day retreat, the most since December 2008. The slump that wiped US$2.7 trillion off the value of global equities was triggered by the devaluation of the Chinese yuan on Aug. 11, which spurred a domino drop in emerging-market assets on concern growth in the world's second-biggest economy is faltering.

Commodities, riskier assets and exporters suffered as investors fled to safety, until yesterday, when panic selling gripped what was once the bastion of stability - the U.S. equity market. "The correction was a much-needed breather," said Kully Samra, who manages U.K. clients for Charles Schwab Corp. in London. "It had been four years since U.S. stocks had seen a correction and there had been very long span of very mild equity performance."

Economic reports may further soothe investors, and offer clues on the timing of an interest-rate increase by the Federal Reserve.