Global stocks rallied Tuesday, as Beijing cut interest rates following another sharp drop in Chinese markets. 
 
 U.S. stocks climbed, echoing an earlier rally in Europe. The Dow Jones Industrial Average was up 406 points, or 2.6%, at 16278 in morning trade. The S&P 500 rose 50 points, or 2.7%, to 1944. 
 
 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 People’s Bank of China also reduced bank-reserve requirements by half of a percentage point, effectively adding 678 billion yuan (about $106 billion) to the Chinese economy. 
 
 The moves came after stocks around the world tumbled on Monday as concerns about a slowdown in China’s economic growth rattled investors. The Dow Jones Industrial Average plunged more than 1000 points at the open, before closing 3.6% lower. 
 
 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 billion). Mr. Harte said he has bought global stocks and emerging-market bonds after Monday’s selloff. 
 
 Earlier Tuesday, there was no letup in the selling in Chinese markets. Shares in Shanghai slumped 7.6% 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 4.0% 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 closed 4.2% higher, its biggest one-day gain since September 2011. 
 
 Related Video An interest-rate cut by China’s central bank added fuel to a rally in European stocks and U.S. stock futures despite another sharp drop in Chinese shares. Charles Forelle reports. Photo: AP 
 
 Germany’s DAX rose 5.0%, France’s CAC 40 climbed 4.1% and the U.K.’s FTSE 100 closed 3.1% 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. 
 
 Oil prices also steadied, with Brent crude 2.3% higher at $43.68 a barrel. 
 
 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 Russia’s ruble. 
 
 A trader reacts at his desk in front of the DAX board at the Frankfurt stock exchange on Monday. Photo: Reuters 
 
 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 $1.1411. The dollar strengthened 1.1% against the yen to ¥119.975. 
 
 In bond markets, U.S. 10-year Treasury yields climbed 0.09 percentage point to 2.10%, 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 ($82 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 Tommy Stubbington at tommy.stubbington@wsj.com ||||| Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital, speaks during the Sohn Investment Conference in New York May 4, 2015. 
 
 NEW YORK DoubleLine Capital co-founder Jeffrey Gundlach, widely followed for his investment calls, warned on Monday that the U.S. equity markets face another round of selling pressure. 
 
 "The U.S. stock market is in a mode of uncertainty, at best," Gundlach said in a telephone interview with Reuters. "You don't correct all of this in three days. The market is wounded and it takes time for people to get around to feeling good again." 
 
 U.S. stocks slumped on Monday, with all three major indexes down more than 3 percent in late trading, with volatility the theme of the day. Stocks had been in a virtual free-fall in early trading, with the Dow Jones briefly plunging more than 1,000 points in its biggest point drop ever. A stunning recovery pared losses before selling resumed. 
 
 Gundlach, who runs Los Angeles-based DoubleLine Capital, which had $76 billion in assets under management as of June 30, said China's currency devaluation "was kind of the exclamation point of corroborating the fact that global growth is subpar." 
 
 The plunge in commodity prices had been signaling a slowdown in global economic growth, led by China, the world's second biggest economy, he said. 
 
 "China is supposed to be the engine of global growth," Gundlach said. "The real key here is if China's 7 percent growth rate is weaker than that. What if it's around 2 percent, which means global growth could very well be 1 percent? There is a knock-on effect and every country would have to downgrade their growth projections if China is really that weak." 
 
 Gundlach said he is also concerned about redemptions in risk-asset-based exchange-traded funds and mutual funds such as high-yield "junk" bond ETFs. 
 
 Last year, Gundlach correctly predicted that Treasury yields would fall, not rise as many others had forecast, because inflationary pressures were non-existent and technical factors, including aging demographics, were at play. 
 
 Since the spring, Gundlach has said repeatedly that he believed the U.S. Federal Reserve would probably not raise interest rates this year, in part because of a lack of wage inflation. On Monday, Gundlach said: "Global growth is not going to be strengthened by this global market turmoil." 
 
 The DoubleLine Total Return Bond Fund (DBLTX.O), the firm's largest portfolio by assets, which is run by Gundlach, had net inflows in July of $390.4 million, marking the 18th consecutive month it attracted new money. It has $47.2 billion in assets and invests primarily in mortgage-backed securities. 
 
 (Reporting by Jennifer Ablan; Editing by Chris Reese and Leslie Adler) ||||| China has launched new stimulus measures to boost the country's flagging economy. 
 
 The People's Bank of China cut its key lending and deposit rates by 0.25% on Tuesday. The one-year lending rate is now 4.6% and the deposit rate is 1.75%. 
 
 This is the fifth time in just nine months that China cut rates to tackle the deepening concerns about its economy. 
 
 The central bank also said it would require large banks to keep less cash in reserve, a move that should boost activity by making it easier and cheaper for the banks to lend money. The change is effective from Sept. 6. 
 
 The moves follow a dramatic crash in Chinese stock markets, which panicked investors around the world on Monday. Worries about the pace of growth in the world's second biggest economy were fueling the selloff. 
 
 The central bank acknowledged the weakness in the Chinese economy - and the need for intervention. 
 
 "At this time, China's economy is still facing downward pressures ... global financial markets have also seen great volatility recently," the central bank said on its website. "As such, there is a need to use monetary policy tools ... to help support a stable and healthy development of the economy." 
 
 China has already taken several steps to control the crisis. The government gave money to brokerages to buy stocks -- and ordered company executives not to sell their shares. New company listings were suspended. 
 
 Related: Asia's richest man lost $13 billion in China crash 
 
 Economists were expecting Beijing to act, especially after a key gauge of China's manufacturing activity tumbled to its lowest level in 77 months last week. The massive selloff on Monday has been partly blamed on China's inaction over the weekend. 
 
 "Simultaneous interest rate and required reserve ratio moves are unusual -- a sign that policymakers want to deliver a strong message," analysts from Capital Economics said in a note. 
 
 The move helped to push European markets and U.S. futures up Tuesday, but some experts say it might not be enough to deal with the real issues. 
 
 "The cut of interest rates ... may calm the stock market turmoil, but does not address the underlying causes," said Kamel Mellahi, Warwick Business School professor. 
 
 The benchmark Shanghai Composite index extended its losses on Tuesday, falling 7.6%. That follows a massive tumble on Monday of 8.5%, the worst one-day drop since February 2007. 
 
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– The financial world looks less chaotic today than it did on what's being called Black Monday: Chinese stocks had another rough day, but European markets stabilized and American stock futures rose, reports the Wall Street Journal. The Shanghai Index closed down 7.6% and Japan's Nikkei dropped 4%, but a host of other markets (the Stoxx Europe 600, Germany's DAX, and France's CAC) were up more than 2% this morning. Meanwhile, China further tried to ease turmoil with new stimulus measures, reports CNN. It cut its main lending and deposit rates by 0.25% and made it easier for banks to lend money. Stock futures for the Dow and the S&P 500 were up more than 3%, suggesting a higher opening this morning, reports TheStreet. Still, don't expect a sudden end to the volatility. "The US stock market is in a mode of uncertainty, at best," DoubleLine Capital's co-founder Jeffrey Gundlach tells Reuters. "You don't correct all of this in three days." Yesterday's global sell-off was triggered by the sharp drop in Chinese stocks, but experts say there was little change in economic fundamentals to justify such a massive global slide. "There was no clear catalyst for the global stock meltdown. The lack of clarity makes it difficult to assess what is needed to stem the rout," says Bernard Aw of IG Markets in a report. (The CEO of Starbucks has told workers to be nice to worried investors.)