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Bear Trap: U.S. stocks stage dramatic reversal, erasing rally and raising new fears


By Drew Harwell and Simon Denyer August 25 at 4:48 PM

U.S. stocks plunged in the last hour of trading Tuesday to wipe out a day-long rally, adding fresh uncertainty to markets that had seemed to be on the rebound.

The wild swing highlighted investors’ anxieties over an expansive Chinese slowdown and hinted at fault lines in an American economy otherwise seen as strong.

The surprise setback dropped the Dow Jones industrial average more than 650 points from its mid-day peak, its biggest reversal since 2008, and pushed the index of 30 blue-chip stocks down 204 points, or about 1 percent, to 15,666.44.

Investors had spent most of the day climbing back from a dismal Monday and from several days of carnage in Chinese stock markets. China’s central bank on Tuesday cut interest rates in a bid to stimulate the country’s economy, and for a while that appeared to reassure European and U.S. markets.

But by late afternoon, Wall Street went back into selling mode, as lingering fears about a slowdown in the global economy undercut the brief surge of confidence.