US stocks advance amid global rally led by Japan, China gains

NEW YORK (BLOOMBERG) - U.S. stocks advanced on Wednesday (Sept 9), joining a rally in markets around the globe, as Japanese shares surged while optimism increased that China can tame its volatile markets.

The Standard & Poor's 500 Index added 0.7 per cent to 1,982.32 at 9.51am in New York, after surging 2.5 per cent yesterday. The Dow Jones Industrial Average gained 122.80 points, or 0.7 per cent, to 16,615.48.

The Nasdaq Composite Index increased 0.7 per cent.

"US stocks are up in sympathy with the enormous rally in Japanese stocks," said Mr Daniel Weston, chief investment officer of Aimed Capital in Munich, Germany. "There's Treasuries selling and that money is shifting today into stocks. I see bonds down as a reflection of an imminent Fed rate rise, which is another positive for stocks as they're a better alternative than cash."

Equities in China rose as the finance ministry pledged to accelerate construction of some major projects and reduce companies' tax burden, while stocks in Tokyo staged the biggest rally since 2008 amid speculation a sell-off that drove valuations to an 11-month low was overdone.

Wide market swings and rapid shifts in investor sentiment have become more prevalent since China's currency devaluation on Aug 11 sparked concerns that a slowdown in the world's second-largest economy would spread.

The S&P 500 on Tuesday regained almost three-quarters of its 3.4 per cent slide last week, which was the second-biggest retreat since December behind the 5.8 per cent plunge it suffered in the five days through Aug 21. In 10 of the last 13 days, the benchmark has closed with a move of at least 1.3 per cent.

The Chicago Board Options Exchange Volatility Index Tuesday snapped a streak of 11 straight sessions above 25, a level that before August it touched on just five days since 2011. The measure of market turbulence known as the VIX fell 8.6 per cent on Wednesday to 22.75.

Investors remain confident the Federal Reserve will raise borrowing costs this year, even as they pare bets on a move at next week's meeting. Traders are pricing in a 28 per cent chance the central bank will increase rates this month, down from 48 per cent before China's devaluation. Odds of a move at the December gathering are about 60 per cent, according to data compiled by Bloomberg.

A Bank of America study showed that the Fed rarely makes a move amid the level of recent equity turbulence. In four tightenings since 1990, including the tapering of bond purchases announced in 2013, the S&P 500 had posted positive returns over the prior three- and six-month periods, and was within 3 per cent of the gauge's 52-week high, according to the report. By comparison, the benchmark index is down 5.3 per cent over the last three months and is 7.5 per cent below its high of 2,130.82 reached in May.