The dominoes stop falling, for now

Most Asian markets get hammered, but China rebounds, and the U.S. stabilizes. Meanwhile, the housing market takes another blow, and U.S. economic growth gets downgraded.

By Andrew Leonard
Published February 28, 2007 4:48PM (EST)

Did the boat just stop rocking?

China's premier, Wen Jiabao, in remarks published on Wednesday, the day after "Black Tuesday" -- the worst day for the Shanghai stock market in 10 years:

"We will improve our capacity in financial regulation to safeguard financial safety and stability."

America's Federal Reserve chairman, Ben Bernanke, one day after the Dow Jones industrial average plummeted 415 points:

"We are looking for moderate growth in the U.S. economy going forward." The markets "seem to be working well."

And perhaps most important, the Shanghai Securities News ran a front-page story on Wednesday declaring that Chinese regulators had no plans to impose a capital gains tax on stock investments. Rumors to that effect are thought to have set off the panic selling in Shanghai on Tuesday.

So while stock markets throughout in the rest of Asia experienced big declines across the board, China rebounded. And as of this writing: 9 a.m. Pacific, the Dow was holding reasonably steady, although after rising 100 points it had fallen back to just a 50-point gain.

Are investors in the U.S. taking their cue from China? Or did Bernanke's measured words calm the waters roiled by Alan Greenspan? Impossible to say. But one thing seems clear, it's going to take a little more bad news than what has already come down the pike this week to derail a five-year bull market.

And on that note, we observe that new-home sales plunged dramatically -- down a whopping 16.6 percent in January, as measured against December -- the worst performance in four years. Meanwhile, fourth-quarter GDP growth was downgraded from 3.5 percent to 2.2 percent. So the market bears have some gristle to chew on.

The market mayhem that began in China, shot across the globe to New York, and then rebounded throughout the world, seems to have stopped for the moment, brought to a halt by Chinese optimism. But if there's any lesson to take from this, it is that even just a rumor of an economic policy shift in China can shake up the entire global economy.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Ben Bernanke China Globalization How The World Works Stock Market U.s. Economy