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After dropping 1,000 points, Dow comes back to close down nearly 600

NEW YORK — Stock prices around the world bounced around wildly Monday as investors debated if and when governments are likely to step in to calm the turmoil that has recently spiraled out from China.

The Dow Jones Industrial Average plunged about 1,000 points immediately after the opening bell Monday before recovering much of those losses and then dropping again nearly 600 points to close at 15,871.28.

That followed a stock market rout in China — immediately named "Black Monday" by local commentators — in which the main Shanghai stock index fell 8.5 percent.

Things were no better when trading opened this morning in Asia as Chinese stocks plunged again. The Shanghai Composite Index fell as much as 6.4 percent to 3,004.13 in the first minutes of trading today. But the index later trimmed its losses and was down 5 percent.

Monday's trading began with questions about whether the Chinese government would make further efforts to support local investors. When Chinese authorities didn't get involved, the talk on trading floors turned to the Federal Reserve's current plans to ease up on its stimulus program and whether that might change in light of the recent tumult.

The market turmoil has led some, including Lawrence Summers, a former chief economic adviser to President Barack Obama, to call for the central bank to reconsider those plans.

"Everything is going to be dictated by government policy," said Kevin Kelly, the chief investment officer of Recon Capital Partners. "Whatever noise is coming from policymakers is going to determine the next couple weeks."

The conversation about government policy is playing into a broader debate about the global economy's ability to continue growing without the sort of extraordinary stimulus that has become the norm in recent years.

In the United States, the major indexes had pared back much of their early losses in midday but again resumed their fall.

The Standard & Poor's 500 index closed down 3.9 percent, at 1,893.21. The index is off more than 11 percent from its high in May, indicating a market correction. The Nasdaq ended Monday down 3.8 percent to 4,526.25.

Investors' worries about China's economic slowdown and a souring view of emerging economies have rattled financial markets around the world in recent days and showed no signs of letting up.

"There was a huge amount of negative sentiment built in this morning," said Dan Greenhaus, the chief global strategist at BTIG.

Greenhaus said many investors ended last week hoping that the Chinese government would step in over the weekend to announce some steps to support the markets, but nothing significant was announced, contributing to the pessimism Monday morning.

The negative sentiment led to the big market drops in early trading Monday, with the S&P 500 initially down more than 5 percent and the Nasdaq down more than 8 percent. The bounce back from those early lows by midday suggested that at least some investors were convinced that the panic has gone too far.

Ryan Larson, the head stock trader at RBC Global Asset Management, said that after the initial market declines clients were canceling their sell orders and putting in requests to buy stocks. Although some U.S. companies may be hit by the weakness in the emerging markets, recent data has suggested that the American economy is continuing to strengthen.

The shares of Apple were in positive territory for a bit after its chief, Timothy Cook, sought to reassure investors that the company's sales were still strong in China.

Still, few investors were calling an end to the volatility that has shaken markets in recent weeks.

Among the biggest losers in the main indexes were oil stocks like ExxonMobil as crude oil prices traded below $40 a barrel.

The fear index, the VIX, was up Monday morning to levels last reached in 2011 when Americans were worrying about a double-dip recession.

Investors flocked to the safe haven of Treasury bonds. The demand for bonds pushed the yield on the benchmark 10-year Treasury note briefly to 1.90 percent before it recovered back over the psychologically significant 2 percent mark.

In China, the benchmark Shanghai composite index closed 8.5 percent lower Monday, erasing all of the gains it had made in an extraordinary run-up this year. In Europe, stocks fell sharply, with several of the main indexes down by 6 percent or more in late-afternoon trading.

The broad-based sell-off in stocks, which has erased nearly $10 trillion from the global stock market since a peak on June 3, poses a challenge to the U.S. Federal Reserve. The central bank's chairwoman, Janet Yellen, and her colleagues on the Fed's policy board have been warning investors for months that the central bank was moving toward the first increase in its main interest rate since it was cut to zero in December 2008.

Many analysts have said that a correction to stock market valuations was overdue after a long bull market. It is too early to say how the financial market slump will affect the underlying global economy where goods and services are actually produced and consumed.

Many of the world's central bankers will have a chance later this week to compare notes and discuss whether new policy steps are needed when they gather, along with finance ministers and academics, in Jackson Hole, Wyoming, for the Federal Reserve Bank of Kansas City's annual conference.

The selling in China has accelerated despite extraordinary government intervention in the last two months aimed at propping up share prices. As the slide Monday highlighted, those efforts have not been a success and the damage has been felt far beyond the Chinese market. The gloom was shared across Asia. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia's main index fell 4.1 percent.

One big question is whether China's stock market plunge will make the Chinese economy, the world's second-largest after that of the United States, even weaker. China's exports were down 8 percent in July compared with a year earlier, while auto sales were down 7 percent.

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