U.S. stocks jumped Tuesday, echoing a rally in Europe, after Beijing cut interest rates and strength in a key barometer of economic health helped lift shares following a deep rout.
The Dow Jones Industrial Average advanced 2.4%, or 373 points, to 16245, while the S&P 500 rose 2.5% and the Nasdaq Composite climbed 3.2%.
Markets in Europe had extended early gains after China's central bank cut interest rates by one-quarter of a percentage point, reassuring investors that Beijing is prepared to take fresh measures to boost the economy.
The move came after stocks around the world tumbled Monday as concerns about a slowdown in China's economic growth continued to rattle investors. The Dow plunged more than 1,000 points at Monday's open, before closing 3.6% lower.
Stocks got further support as the Confidence Board said consumers' view of the economy this month rose to the highest level since January. The survey was conducted this month through Aug. 13, meaning responses don't reflect sentiment following the recent financial markets plunge.
Almost all sectors in the S&P rose, with consumer discretionary companies leading the gains. Best Buy Co. was up 14% at $ 33.44. Under Armour Inc. rose 6.5% to $ 90.96. Some stocks that had recently suffered large share-price losses were among the biggest gainers Tuesday. Apple Inc. rose 5.6% to $ 108.87. Walt Disney Co. rose 3.8% to $ 98.97. J.P. Morgan Chase & Co. rose 3.8% to $ 62.52. Exxon Mobil Corp. added 2.8% at $ 70.64.
It is still unclear, however, whether the recovery will last, analysts say.
"It is this tug of war between those who see good opportunities [developed markets' equities] and those who remain fearful that China's slowdown will continue to worsen," said Kate Warne, investment strategist at Edward Jones.
Earlier Tuesday, there was no letup in the selling in Chinese markets. Shares in Shanghai closed 7.6% lower as the index fell below 3000 for the first time since December, following the worst one-day loss in more than eight years on Monday. China's stock plunge has wiped out more than $ 1 trillion in value from equities over the past four days.
Japan's Nikkei closed 4% lower after staging a short-lived recovery.
But elsewhere, markets steadied.
European shares rebounded sharply from the previous session's slump. The Stoxx Europe 600 index was 3.8% higher early afternoon, on course for its biggest one-day gain since September 2011.
Germany's DAX rose 5%, France's CAC 40 climbed 4.1%, and the U.K.'s FTSE 100 was 3% higher.
"I suspect things will calm down in the short term," said Guy Foster, head of research at wealth manager Brewin Dolphin.
The indiscriminate nature of Monday's selloff displayed an "air of irrationality," he added.
Some investors said bargains were appearing after the heavy selloff.
"Is this the bottom? We don't know. But risk assets are much better priced than they were three weeks ago," said Colin Harte, a multiasset portfolio manager at BNP Paribas Investment Partners, which manages €532 billion ($ 611.4 billion). Mr. Harte said he has bought global stocks and emerging-market bonds after Monday's selloff.
Oil prices also steadied, with Brent crude 1.7% higher at $ 43.41 a barrel. U.S. crude rose 3.3% to $ 39.52.
In currency markets, many of the previous day's big moves went into reverse. A host of emerging-market currencies gained against the dollar, including the South African rand and Russian ruble.
The euro and the yen weakened against the dollar. When markets come under strain, investors have recently tended to exit popular negative bets on the euro or yen. That means the two currencies rise when stocks fall sharply and weaken when stocks recover. The euro was down 1.6% against the buck at $ 1.1409. The dollar strengthened 1% against the yen to ¥119.862.
In bond markets, U.S. 10-year Treasury yields climbed to 2.103%, having dipped below 2% on Monday for the first time since April. Yields rise as prices fall.
Investors are left grappling with the question of whether the selloff is over.
Worries about China have stirred concerns that the world economy faces the prospect of a rise in U.S. interest rates in a relatively fragile state, according to Scott Jamieson, head of multiasset investing at Kames Capital, which manages £52 billion ($ 81.7 billion) of assets.
The Federal Reserve is still expected to lift rates from record lows in the coming months.
"The world economy isn't robust enough to deal with that uncertainty. I don't think we are out of the woods yet," said Mr. Jamieson.
Write to Leslie Josephs at leslie.josephs@wsj.com and Tommy Stubbington at tommy.stubbington@wsj.com
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