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US stocks rally as S&P 500 rebounds

Sydney - US stocks rallied, with the Standard & Poor’s 500 Index clawing 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.

The S&P 500 rose 1.7% to 1 925.62 at 15:32, after closing on Monday 11% below its May all-time high, meeting the definition of a correction for the first time since 2011.

“Now that the People’s Bank of China is addressing widespread concerns of inaction, we could see a fairly significant bounce,” said Ross Yarrow, director of US equities at Robert W. Baird & Co. in London.

“The S&P 500 has fallen 10% in the last few days purely on China. The move seems extreme.”

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% on Monday to cap a 7% two-day retreat, the most since December 2008. JPMorgan Chase & Co. today recommended buying at these levels.

The slump that wiped $2.7trn off the value of global equities was triggered by the devaluation of the Chinese yuan on August 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 US equity market.

“The correction was a much-needed breather,” said Kully Samra, who manages UK clients for Charles Schwab in London. “It had been four years since US 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.

A consumer confidence index is expected to advance from last month, while July home purchases are also forecast to gain. Economists surveyed by Bloomberg anticipate new home sales will rise 5.8% to an annualized pace of 510 000.

Traders are now pricing in a roughly one-in-four chance the central bank will act at its September meeting, from about 48% just before the yuan devaluation, as the rout in equity markets has shaken confidence that the global economy will be strong enough to withstand higher US rates.

Fed Bank of Atlanta President Dennis Lockhart said on Monday he still expects a rate raise this year, while cautioning that a stronger dollar, a weaker Chinese yuan and falling oil prices complicate the outlook.

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