After latest stock dip, China acts to goad economy

Last Updated Aug 25, 2015 9:21 AM EDT

BEIJING - After another sharp drop in its main stock indexes, China cut interest rates on Tuesday in a move to lift the country's slowing economy.

The rate cut came hours after after China's Shanghai stock index slumped to close 7.6 percent lower, adding to Monday's 8.5 percent loss and taking the benchmark to its lowest level since Dec. 15. It is the fifth time in nine months the People's Bank of China has lowered the cost of borrowing, which is aimed at stimulating growth.

The rate cut appeared to help stem the panic that had gripped global financial markets on Monday. European markets recovered almost all their losses from Monday, while U.S. stocks were expected to open higher and oil prices rebounded. Stock futures were up significantly on major U.S. indexes shortly before the start of trade in New York.

"Global markets have for the most part rebounded this morning, happy to let China's problems stay in China," analysts with TD Securities said in a note. "This is likely to be reinforced as China has just announced a number of easing measures."

China's benchmark rate for a one-year loan will be cut by 0.25 percentage point to 4.6 percent and the one-year rate for deposits will fall by a similar margin to 1.75 percent, the central bank announced. It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5 percentage point.

The moves had been anticipated by financial analysts after exports, manufacturing and other economic indicators weakened by larger margins than expected.

Beijing reported economic growth held steady at 7 percent in the latest quarter, but that was due to a stock market boom that pushed up the contribution from financial industries while other sectors weakened.

In a statement, the central bank cited "downward pressure" on China's economic growth rate and said it wanted to lower financing costs for Chinese companies.

The bank also promised to pay close attention to liquidity, or the availability of credit, a possible attempt to ease concern a recent rise in capital outflows from China might leave less money for lending.

Exports in July fell by an unexpectedly large margin of 8.3 percent while a manufacturing survey found activity this month contracted at a faster rate than anticipated.