LONDON (AP) — Markets enjoyed a short-lived rally Thursday after China surprised investors with its second rate cut in a month, but the gains didn't last long as investors worried that the downturn in the world's second-largest economy may be bigger than they had expected.
The People's Bank of China cut its main lending rate by 0.31 percentage point to 6 percent and reduced its deposit rates by a quarter of a percentage point to 3 percent. It said the moves should boost growth in the second half of year but analysts said it hinted at a deepening economic concern.
Mark Williams, chief Asia economist at Capital Economics, said the move by the Chinese central bank may indicate that policymakers have had a sneak preview of June figures and "not liked what they've seen."
In addition, he said the Chinese monetary authorities may have wanted to accentuate the impact of their rate cut by doing it alongside others in Europe to encourage talk of a coordinated response to the slowdown in the global economy.
"Again, though, this might simply underline the seriousness of the downside risks," said Williams.
The move overshadowed developments in Europe, which were expected by the markets. The Bank of England, at the same time as China's central bank, approved another 50 billion pounds ($78 billion) injection into the ailing British economy.
Under the so-called quantitative easing program, the Bank purchases government bonds from banks, in the hope that they will use the money to lend to businesses and consumers. The new purchases are expected to take 4 months to complete.
The European Central Bank also delivered on market expectations by cutting its main interest rate by a quarter of a percentage point to 0.75 percent, the lowest it's been since the bank was established in 1999.
Investors will look to ECB president Mario Draghi's press conference for hints on what the central bank may do next and what its forecasts for the economy are.
In Europe, Germany's DAX was 0.3 percent higher at 6,579 while the CAC-40 in France fell 0.1 percent to 3,264. The FTSE 100 index of leading British shares was 0.2 percent higher at 5,698.
Wall Street is expected to have a flat opening with both Dow futures and the broader S&P 500 futures 0.unchanged.
The ADP private payrolls firm said 176,000 jobs had been created in June. Investors will use that figure to reassess their estimates for official government report due Friday. Analysts say another weak number could prompt the U.S. Federal Reserve to enact another monetary stimulus, too.
Earlier in Asia before China's rate cut, Japan's Nikkei 225 index fell 0.3 percent to 9,079.80 and Hong Kong's Hang Seng was up 0.4 percent to 19,792.02. South Korea's Kospi slipped 0.1 percent to 1,875.49. Australia's S&P/ASX 200 dropped 0.1 percent to 4,169.20. China's Shanghai Composite tumbled 1.2 percent to 2,201.35.
Oil prices advanced alongside stocks, with benchmark oil for August delivery up $1.21 at $88.87 a barrel in electronic trading on the New York Mercantile Exchange.