Traders work on the floor of the New York Stock Exchange (NYSE) at the start of the trading day in New York on Wednesday. Photograph: Andrew Gombert/EPA
US stocks rallied late on Wednesday afternoon following an earlier worldwide markets slump due to concerns about the health of the Chinese economy.
The major US stock indices end the day roughly flat, after having dropped by between 1-2% in earlier trading due to investors worries that the world’s second-largest economy may be in worse shape than had been believed after China took the surprise move of devaluing the yuan for the second consecutive day.
The Dow Jones Industrial Average, which had touched a six-month low earlier in the day, ended the day flat at 17,402 points, the Standard & Poor’s 500 was up 0.1% to 2,086 and the Nasdaq, which had dropped as much as 1.7% at one point, closed up 0.15% to 5,044.
US companies with the biggest exposures to China including car companies and Apple, for whom China is key growth area, had been the biggest fallers. But they recovered late in the day to end roughly flat or higher.
The earlier US markets slide had followed drops on stock markets around the world. In China the Shanghai composite lost 1.03%, while the Nikkei fell 1.58%, or 327.98 points. The FTSE 100 closed down 1.4%, Germany’s DAX lost 3.3% and France’s CAC 40 was 3.4% lower.
Analyst fear that a slowdown in China’s growth could have a ripple effect on the whole of the global economy.
“China’s currency moves will hurt appetite for risky assets such as equities and commodities,” Rajeev De Mello, head of Asian fixed income at Schroders in Singapore, said.
“While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world.”
Guillermo Felices, an analyst at Barclays, said: “Risky assets remain under pressure. A key market concern is that the latest (Chinese) measures respond to much weaker Chinese growth than expected.”
The yuan hit a four-year low against the dollar on Wednesday, its weakest since August 2011, after the Chinese central bank set the yuan’s daily midpoint even weaker than in Tuesday’s devaluation.
With the bank having said that Tuesday’s move was a “one-off depreciation”, the rapid drop in the value of China’s currency – about 4% in the past two days – dealt a blow to the appetite for risky assets, and markets across the region plunged amid concerns that Beijing has embarked on a damaging currency war.
Why China is devaluing the yuan: a market expert explains – video
Contributing to the Chinese slump were worse-than-expected economic figures with fixed-asset investment falling short of expectations. The crucial gauge on the country’s growth came in at 11.2% for the first seven months from the same period last year, according to official data. Economists had forecast a rise of 11.5%.