U.S. shares clawed back some of their recent losses after China's move to stabilize its currency fueled speculation cooler heads will prevent a full-blown trade war.
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More:
Markets plunge as trade war escalates)
The S&P 500 Index rose 1.3%, though it remained well off the record high it reached just a bit more than a week ago. The dollar steadied and gold held near a six-year high after China fixed the yuan at stronger than 7 per dollar, the level that spurred a global sell-off Monday. Treasuries gave back some of yesterday's surge, which had created the most extreme yield-curve inversion since the lead-up to the 2008 financial crisis.
China's move to stabilize the yuan offered some reassurance that the trade conflict between the world's two largest economies might be contained. But it came hours after the U.S. had designated the country a currency "manipulator," a move that could open the door to new penalties on top of the tariff hikes already imposed on Chinese goods. For its part, China said the recent yuan depreciation was decided by the market, not Beijing, and denied the Trump administration's accusation.
"It was encouraging to see China walk in and support the currency overnight," said Ed Keon, a managing director and portfolio manager at QMA. "But there's still a long way to go and it feels as if this has entered a new, and perhaps more dangerous, phase."
Meanwhile, White House Chief Economic Adviser Larry Kudlow said the U.S. expects China to visit for more trade talks in September. Bloomberg reported the People's Bank of China reassured a number of foreign exporters the yuan won't continue to weaken significantly and the companies' ability to buy and sell dollars would remain normal.
Brent oil slid into bear-market territory as investors speculated a slowing economy could sap demand. The Stoxx Europe 600 erased gains and dropped for a third straight day. The yen slipped from its strongest closing level in more than a year. The benchmark gauge for Asian stocks fell for a fifth session.
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More:
Wall Street reactions to China trade escalation marked by fear, uncertainty)
Elsewhere, Bitcoin broke above $12,000 for the first time in three weeks before pulling back. The pound strengthened as opponents of a no-deal Brexit hardened their plans to stop Prime Minister Boris Johnson from possibly trying to leave the European Union with no agreement.
These are some key events to watch out for this week:
Earnings from financial giants include: UniCredit,
AIG, ABN Amro Bank, Standard Bank, Japan Post Bank.
Central banks with rate decisions Wednesday include India and New Zealand.
A string of Fed policy makers speak this week, including Chicago's Charles Evans on Wednesday.
Here are the main moves in markets (all sizes and scopes are on a closing basis):
Stocks
The S&P 500 Index rose 1.3% at the close of trading in New York.
The Stoxx Europe 600 Index fell 0.5%.
The MSCI Asia Pacific Index declined 0.8%, hitting the lowest in almost seven months.
Currencies
The Bloomberg Dollar Spot Index rose 0.1%.
The euro was little changed at $1.1197.
The British pound gained 0.2% to $1.2161.
The Japanese yen sank 0.5% to 106.52 per dollar.
The onshore yuan jumped 0.4% to 7.0198 per dollar, the biggest increase in six weeks.
Bonds
The yield on 10-year Treasuries increased one basis point to 1.72%, the first advance in more than a week.
Britain's 10-year yield was little changed at 0.51%.
Germany's 10-year yield decreased two basis points to -0.54%, hitting the lowest on record with its eighth straight decline.
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More: Is a recession coming? Yield curve signals loudest warning since 2007)
Commodities
Gold rose 0.6% to $1,472.63 an ounce, the highest in more than six years.
West Texas Intermediate crude fell 1.9% to $53.68 a barrel.
