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Global stock markets rebound as China cuts interest rates

Stock market operator Euronext's universal analysts work in the market services surveillance room center at the new Euronext headquarters in the La Defense business district, near Paris on August 25, 2015. ©AFP

Global stock markets have started to rebound after the central bank of China reduced its key interest rates to support growth in the world's second-largest economy.

Earlier on Tuesday, China's main stock index closed drastically lower for a fourth day, AFP reported.

European markets recovered almost all their losses from Monday, with most indices rising at least 4 percent. The US stocks were also expected to open higher.

On Monday, which was described as Black Monday by traders, US stocks plunged more than 3.5 percent, with the Dow Jones industrial average falling nearly 7 percent to record its biggest drop in four years.

The move by China’s central bank came hours after Shanghai stock index closed 7.6 percent lower than Monday's 8.5 percent loss, thus taking the benchmark to its lowest level since December 15.

According to AFP, the bank cut its interest rates for the fifth time in nine months in a renewed effort to bolster economic growth. The central bank also lowered the benchmark rate for a one-year loan by 0.25 percentage points to 4.6 percent and the one-year rate for deposits by a similar margin to 1.75 percent.

Investors look at screens showing stock market movements at a securities company in Beijing on August 25, 2015. ©AFP

The Chinese central bank also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5 percentage points.

While Tokyo's Nikkei 225 had earlier closed down 4 percent after sliding 4.6 percent on Monday, other Asian markets posted modest recoveries with Hong Kong's Hang Seng index rising 0.7 percent, and Sydney's S&P ASX 200 gaining 2.7 percent.

In morning trading in Europe, France's CAC-40 jumped 4.3 percent after tumbling 5.4 percent on Monday while Germany's DAX was up 4.1 percent after dropping 4.7 percent the day before. Britain's FTSE 100 was also 3.3 percent higher.

Dow Jones and S&P 500 index futures were both up 3.7 percent, an indication the US market is set to open higher.

Analysts say while Tuesday's actions by the central bank of China may calm the stock market temporarily, the country faces a long period of uncertainty that will create more volatility.

"The Chinese economy is going to be on this bumpy road for a while and it will have ebbs and flows that will no doubt have a serious impact on the global economy," said Kamel Mellahi, professor at the Warwick Business School, who added, "What we are seeing now is a dress rehearsal of things to come."


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