China has reduced its main interest rate to boost growth in its economy.
The People's Bank of China cut its key lending rate by 0.25 percentage points to 4.6% in an effort to calm stock markets after two days of turmoil.
It is the fifth interest rate cut since November and will take effect on Wednesday.
The move has boosted global share prices further, with London's FTSE 100 jumping 3%, while Germany's Dax gained 5% and the Paris Cac rose by 4.1%.
Other European markets, including Lisbon, Madrid, Moscow and Milan, all closed sharply higher.
But
Wall Street bucked the trend. Having initially surged all three main
stock indexes in the US reversed sharply in the final hour of trading.
The Dow Jones index eventually closed 1.3% lower, while the S&P 500 dropped 1.4%.
The
People's Bank said that the interest rate cut was to reduce "the social
cost of financing to promote and support the sustainable and healthy
developments of the real economy".
It
also acted to increase the flow of money in the economy by cutting the
amount of cash banks must keep in reserve, effectively freeing them to
lend more cash.
The central bank's move was broadly welcomed by economists.
A
research note from JP Morgan stated: "China's decision to cut... will
be regarded by many investors as overdue. The litmus test will come
overnight, however, and the efficacy of the... cut in boosting the
domestic stock market."
Singapore-based investor Jim Rogers said
he thought the panic over the Chinese market would be over soon: "I
haven't sold any Chinese shares. A couple of days ago, when they really
collapsed, I bought more. Of course I'm losing money now on those.
"That
kind of panic selling usually means the bottom is coming and I would
suspect before too much longer the bottom will be in place."
Growth fears
The
Chinese authorities have taken a number of steps to help stem stock
market losses since the market began a series of heavy falls in June.
Earlier,
China's falling stock market had hit markets around the globe on
Monday, and - although Asian markets were again hit overnight - European
stocks had already opened in a more optimistic mood on Tuesday. The main Shanghai Composite index ended Tuesday's
session down 7.6% at 2,964.97 points. Japan also saw more sharp falls,
sending Tokyo's Nikkei index down 4%.
The global sell-off has been driven by fears that China's slowing growth means less business for everyone else.
Analysis: Robert Peston, BBC business editor
Beijing
will be hard pressed to meet its target of 7% GDP growth this year
without doing the opposite of what is needed to put the economy on a
sustainable footing, which is to curb debt-fuelled investment in
infrastructure, construction and lame-duck heavy industries.
Also
very difficult to gauge is the scale of the negative impact on the
spending habits of investors whose wealth has been mullered and on the
investing habits of companies whose share prices have been poleaxed.
But
there is a serious risk of economic aftershocks from the market quake:
multinationals with production in China aimed at Chinese consumers tell
me they are significantly scaling back their manufacturing plans.
The
big point about today's Chinese monetary stimulus is that it may revive
growth and the stock market in the short term - but it will further
inflate China's dangerous debt bubble and will increase the longer term
risk of a crash. Read Robert Peston's blog in full Duncan Weldon: Stock falls don't mean recession The six Cs of the China stock slump The stocks fall in facial expressions Andrew Walker: How the China share slump affects the rest of the world Karishma Vaswani: China counts cost of Black Monday
Investors
globally are worried that firms and countries that rely on high demand
from China - the world's second-largest economy and the second-largest
importer of both goods and commercial services - will be affected.
But
although the slowdown in the Chinese economy will have a bearing on
Chinese firms' profitability, many view the stock market as grossly
inflated.
The main Shanghai index more than doubled in the 12 months up to mid-June.
Weak
manufacturing figures from China prompted a massive fall in shares on
Friday, which was followed by another, the biggest in eight years on
Monday, triggering a mass sell-off across the globe.
Media captionHow China slowed global markets - in 90 seconds
The
government, which has both the money and the power to influence what
are not free markets, has taken steps to lower the value of the yuan in
order to boost demand for Chinese goods overseas.
Although very
few Chinese people own shares - only about 2% of the population - they
are extremely active on its stock market. They are responsible for the
majority of daily turnover and the government is trying to reduce the
impact of the trading rout on those individuals.
Many bought
shares with borrowed money, and as those investments fall in value, they
are now selling them to pay back their debts.
The interest rate cut should make their debt levels a little more bearable. Are
you concerned about the falls in the Chinese stock market? Has your
business been affected? You can share your comments and experience by
emailing haveyoursay@bbc.co.uk.
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