Chinese cut rates to halt slide after Black Monday

A man stands in front of an electronic board displaying financial information in Hong Kong yesterday. Picture: AFP/Getty
A man stands in front of an electronic board displaying financial information in Hong Kong yesterday. Picture: AFP/Getty
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An interest rate cut by China’s central bank helped the stock market’s fightback yesterday as the FTSE 100 Index rallied from one of its worst sessions in recent years.

London’s top-flight surged by more than 200 points, or 3.6 per cent, adding about £54 billion back on to the value of the UK’s top 100 listed companies after £74 billion was wiped off the index in the previous session.

It meant the blue-chip share index had recovered most of the losses suffered on Monday when it dived by 4.7 per cent - a slump that came at the end of 10 days in a row of declines in the FTSE’s worst losing streak since 2003.

Panic about the financial health of China saw more than a trillion dollars wiped off the stock market at the beginning of this week. After the weekend, “black” Monday saw one of the worst days for shares since the banking crisis of 2008 when 
Lehman Brothers collapsed. The Chinese crash, which has been nicknamed “the great fall of China” has seen prices fall and share prices crash.

The problems faced by the China, the world’s second largest economy, have had repercussions across the globe.

Monday’s one-day drop - which followed on from a 2.8 per cent fall on Friday - had not been equalled since September 2011 while there had been none worse since the dark days of the downturn..

Investors have been spooked by the continuing falls in the Chinese stock market - which saw its worst fall for eight years at the start of the week and plunged by a further 7.6 per cent overnight.

But the London market bounced back in early trading in the latest session, with investors hunting bargain-priced stocks and the panic that had seen trading screens turn red the day before ebbing away.

There was further cheer when China’s central bank slashed interest rates by 0.25 percentage points - the fifth cut in nine months - in an effort to shore up its economic growth.

It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold. German’s Dax rose four per cent while France’s Cac 40 added nearly five per cent. China’s moves reassured global markets which have been rocked in recent weeks by the slowdown in the world’s second biggest economy and the depreciation of the yuan - as well as plunging commodity prices.

In New York, the Dow Jones Industrial Average was up by more than 300 points, or over two per cent, shortly after opening.

The FTSE 100 pared some of its earlier gains but was still ahead by around 150 points, or about 2.5 per cent, at about 6050.

This put the index on course for its biggest rise since July 4 2013, when it climbed by 3.08 per cent. More recently the FTSE 100 added 2.4 per cent on December 16 last year.

Chancellor George Osborne said the volatility showed that “lots of risks” remained in the global economy and that Britain was “not immune to what goes on in the world”.

London’s top-flight remains in “correction” territory, more than 10% off its all-time closing high of 7104 in April.

But almost all top-flight shares were ahead yesterday, with the index pulled higher by a recovery in commodities stocks which have been pounded by the falls in metal prices caused by China’s woes.

Glencore was up eight per cent while Antofagasta and BHP Billiton each rose seven per cent.

On a visit to Wakefield, Chancellor George Osborne said: “Stock markets go up and down. The question you’ve got to ask yourself is what it’s telling you about the global economy.

“These dramatic movements in recent days are telling us there are still lots of risks out there in the global economy and there are particular concerns about what’s going on in China. What does that all mean for Britain? Well, it means we’re not immune to what goes on in the world. We know that.”