Dow Jones recovers after two days of downturn

Trader Edward Curran works on the floor of the New York Stock Exchange Tuesday Feb. 6 2018

Trader Edward Curran works on the floor of the New York Stock Exchange Tuesday Feb. 6 2018

The Dow Jones Industrial Average rose 247.76 points, or 1.02 percent, to 24,593.51, the S&P 500 gained 18.35 points, or 0.69 percent, to 2,667.29 and the Nasdaq Composite added 70.80 points, or 1.02 percent, to 7,038.33.

At one point Monday afternoon, the Dow was down 1,579 points - the largest intraday point drop in the history of the index. The last fall of that size came in August 2011 when investors were fretting over Europe's debt crisis and the debt ceiling impasse in Washington that prompted a US credit rating downgrade.

Tuesday morning's initial nose dive came after two consecutive days of negative trading, including a 600 point drop on Friday.

Investors dumped stocks on fears Congress would not be able to pass a rescue plan to unfreeze USA credit markets, with banks hoarding cash as the effects of the subprime crisis cascaded through the financial system. The Dow is still up 20 percent over that time, the S&P 500 15 percent.

Minutes after the European markets opened, there were declines across most sectors.

The Dow has now pulled back about 10 percent since reaching a record high of 26,616 on January 26, 2018 - putting it in correction territory.

Declining issues outnumbered advancing ones on the NYSE by an 8.64-to-1 ratio; on Nasdaq, a 6.92-to-1 ratio favoured decliners. It was down 872, or 3.4 percent, to 24,651.

The final numbers of the day are shown above the floor of the New York Stock Exchange in New York, US, February 5, 2018.

"If this is just the implosion of shorting volatility, it's not the end of the bull market", said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee.

Earlier, Taiwan's main index lost 5.0 percent, its biggest slump since 2011, Hong Kong's Hang Seng Index dropped 5.1 percent and Japan's Nikkei dived 4.7 percent, its worst fall since November 2016, to four-month lows.

The question now for investors, who have ridden a almost nine-year bull run, is whether this is the long-awaited pullback that paves the way for stocks to again keep rising after finding some value, or the start of a decline that leads to a bear market.

Bond yields turned higher after a sharp drop Monday.

Investors reacting to recent global equity losses, and concerns that a number of central banks look likely to raise interest rates to curb inflationary pressures from surging global economies contributed to the drop.

"The main reason for the decline on the USA stock market is that the recent figures released by the US looked pretty strong", explained Lu Zhengwei, chief economist at Shanghai-based Industrial Bank. The yields on 10-year Treasury bills stood at 2.779 percent, below recent highs, and corporate bond rates held steady Monday, suggesting that a stampede out of stocks is not imminent.

In Europe, Germany's DAX was down 2.1 percent and the CAC 40 in France lost 2 percent. Brent crude, the benchmark for worldwide oil prices, lost 76 cents, or 1.1 per cent, to US$66.86 a barrel in London. Copper rose 3 cents to $3.22 a pound.

On Monday, the Dow finished down 4.6 percent while the S&P 500 sank 4.1 percent. Industrial companies were also falling.

Gold declined 80 cents to $1,336.50 an ounce.

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