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Dow up nearly 200 as Street ends 5 days of losses

Adam Shell
USA TODAY

Stocks rallied and the Dow gained nearly 200 points Tuesday as Wall Street shook off its 5-day losing streak, its worst stretch since early January.

Markets around the world stabilized after China’s battered and volatile stock market fell again but rebounded from steep session lows and U.S. traders readied for the Federal Reserve’s statement on interest rates when the central bank’s two-day meeting ends Wednesday.

Traders work on the floor of the New York Stock Exchange.

The Dow Jones industrial average ended up 190 points, or 1.1%. The Standard & Poor's 500 index gained 1.3% and the Nasdaq composite index rose 1%.

The wild ride on the Shanghai composite index in China continued Tuesday, but the index, which suffered its worst one-day drop in eight years on Monday when it plunged 8.5%, finished Tuesday’s trading session off 1.7%, after being down more than 5% earlier in the session.

The bounce back in China, which was helped by more steps taken by Chinese regulators and central bankers to stem the panic, was welcomed by investors around the world, which fear a further meltdown in mainland Chinese shares would exacerbate an economic slowdown in the world’s second-biggest economy and dent global growth as well.

“With Chinese stocks stabilizing, European stocks are also recovering this morning,” as are U.S. shares, Cagdas Aksu of Barclays told clients in a note before the opening bell.

The Shanghai’s bounce from session lows today, which came in another wild day of trading, sparked a rally in shares in other global stock markets. Shares in Hong Kong rose 0.6% and Japan’s Nikkei 225 index erased nearly all of its intraday losses to finish down just 0.1%. The rally spread to Europe. The FTSE 100 in London was up 0.8%, Germany’s DAX is 1.1% higher. And CAC 40 in Paris was 1% higher.

Wall Street is also bracing for the Fed policy announcement on interest rates Wednesday when the central bank breaks from its two-day July meeting. The big question is when the Fed will start to hike short-term interest rates for the first time in nearly a decade. Earlier this month in her semi-annual testimony to Congress, Fed chair Janet Yellen reiterated that the conditions in the labor market and U.S. economy are improving, making it appropriate for the Fed to begin its rate-hike cycle later this year.

Wall Street is wondering when the first rate hike will come. There is a large contingent of Wall Street pros that think the Fed will move as early as September. The other camp says later in the year, likely in December.

Money managers will be listening for any clues from the Fed statement as to whether the recent stock market turbulence in China, which has slashed the value of the Shanghai composite index by a third since the peak in June, could give the Fed reason to hold off on rate hikes until later in the year.

The quarterly earnings parade also will influence the direction of stock prices today as second-quarter results continue to roll in. Before the opening bell Dow components and drugmakers Pfizer and Merck both topped earnings per share projections, although just Pfizer topped revenue projections.

In other earnings news, automaker Ford topped earnings estimates by 6 cents, reporting its best North American quarter ever. Dow component DuPont reported earnings of $1.18 per share, matching estimates.

Commodities continued to struggle. The price of a barrel of U.S.-produced crude hit a fresh 52-week low of $46.68 before rebounding. A barrel of West Texas Intermediate crude was trading rose 57 cents to $47.97.

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