A global stock rally stumbled on Tuesday, as traders weighed signs of economic recovery against flare-ups in coronavirus cases in several parts of the world.

On Wall Street the S&P traded 0.3 per cent lower in afternoon trading, following a run of five straight days of gains that came even as the US suffered a surge in Covid-19 cases and as some parts of the country reversed their reopening plans. The Nasdaq recovered earlier losses to gain 0.1 per cent.

Hopes for a rapid recovery in Europe were dented after the European Commission slashed its growth forecasts for the region’s economy this year after noting that lockdown measures were eased more gradually than initially expected.

The continent-wide Stoxx 600 index fell 0.6 per cent from around one-month highs. London’s FTSE 100 closed 1.5 per cent lower.

Markets have pushed higher in recent days, driven by upbeat economic data, hopes of a possible vaccine and continued central bank support. But the gains have come as many countries have reported another burst of Covid-19 cases, leading some authorities to reimpose tighter lockdown restrictions.

Equity strategists at Citi highlighted several risks to shares, even while they raised their forecasts for the S&P 500 this year. “A second wave of debilitating Covid-19 cases would be challenging, not to mention the US elections,” they said in a note to clients. “But these are not immediate threats, and investors appear to only have short-term timeframes.”

Art Baluszynski, head of research at Henderson Rowe, said some investors would have taken profits following the recent gains. This rally ran the risk “of turning into speculation”, he said, adding that “pressure valves” of corrections were likely, particularly as the outlook for corporate earnings darkened.

Still, Mr Baluszynski said “equities are the only game in town” since central banks are committed to keeping interest rates low and pumping liquidity into financial markets.

Chinese stocks extended their rapid gains on Tuesday. The CSI 300 of Shanghai and Shenzhen-listed shares rose 0.6 per cent, taking gains during the past week to 12 per cent. The renminbi, which trades within a tightly controlled range, strengthened to Rmb7.02, its highest level against the dollar since March.

China’s equities market has been supported in recent days by state-run media, which have encouraged retail investors to buy stocks.

There are indications that global investors are also buying into the China rally, analysts said. “The market is still relatively cheap so global fund managers have room to increase their exposure,” said Kenny Wen, a strategist at Everbright Sun Hung Kai. “It may have room to go further.”

Elsewhere in the Asia-Pacific region, Australia’s S&P/ASX 200 fell 1.1 per cent. Lockdown restrictions will be reimposed on metropolitan Melbourne from midnight on Wednesday, Victoria’s premier said, following an “unsustainably high” number of new coronavirus cases.

Crude oil prices nudged higher with Brent, the international marker, gaining 0.6 per cent to $43.34 a barrel. West Texas Intermediate, the US benchmark, was up 0.4 per cent at $40.81 a barrel.

The yield on the 10-year US Treasury note, viewed as a haven in times of market uncertainty, was down 0.03 percentage points at 0.65 per cent as investors moved into the debt. Yields move inversely to prices.

Additional reporting by Alice Woodhouse in Hong Kong and Harry Dempsey in London

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