European Stocks: Dow Jones Index Rallied early, but Dropped at the Close.

London's FTSE 100 was 0.4% lower by midday, with markets in Paris and Frankfurt down by similar amounts.

In Tuesday's session on Wall Street, the Dow Jones index rallied at first, but dropped sharply at the close.

Experts expect market volatility to continue at least until the Federal Reserve next meets in September to set US interest rates.

 

"Until we get September out of the way, I think markets will continue to be choppy," said Michael Hewson, chief market analyst at CMC Markets.

"These are the sorts of swings that we last saw in 2008," he added.

Because of the wild market swings in global markets, Mr Hewson said he did not expect a rate rise out of the US next month, because of the central bank's mandate to maintain financial stability.

"I think they would be absolutely bonkers to raise rates now," he said.

Oil and metals prices were also under pressure, with Brent crude close to six-year lows.

"There doesn't seem to be a host of good news out there at the moment," said Brenda Kelly, head analyst at London Capital Group,

She said she expected more big market swings on Wall Street later on Wednesday.

The recent global stock market rout began in China, where the benchmark Shanghai Composite has lost about 16% of its value this week.

On Wednesday, the Shanghai index fell 1.27% to 2,927.29, after veering in and out of negative territory.

China contagion

On Tuesday, China's central bank cut its key lending rate by 0.25 percentage points to 4.6% in a bid to calm stock markets after the past days' turmoil.

The dramatic losses and volatility in China have shattered investor confidence and led to sharp falls in Asia and the US over the past days. 

The interest rate cut was the fifth by the People's Bank of China since November last year.

A rate cut will make it cheaper for banks to borrow from the central bank and will in turn make it easier for businesses and private people to borrow money from those banks.