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US stocks rose more than 4 per cent on Wednesday as investors cheered Joe Biden’s strong showing in the US Democratic primaries and members of the US House approved an $8bn deal to fund a response to the coronavirus outbreak.

The equity market extended earlier gains after the House of Representatives announced the vote on a spending package to help limit the spread of the virus. The Senate is expected to take up the bill soon, which will allocate money for protective equipment like masks, and bolster state and local governments’ testing and surveillance. Investors have also welcomed signs of a more co-ordinated policy response by governments and central banks around the world.

The S&P 500 finished the day 4.2 per cent higher, marking another sharp move in one of the most dramatic periods of trading on Wall Street since the financial crisis. On Tuesday stocks sold off after the Federal Reserve’s shock decision to cut interest rates by half a percentage point. On Monday, they posted one of the best days in the last decade. Last week saw heavy selling due to fears of the spread of the coronavirus.

“The fiscal stimulus is a net positive for the stock market,” said Quincy Krosby, chief market strategist for Prudential Financial. “Many take that as an early sign we have hit a market bottom.”

The yield on the US 10-year Treasury note was at 1.031 per cent after spending the morning below 1 per cent, a threshold it breached for the first time on Tuesday.

Healthcare stocks led the market with a 5.8 per cent gain, their best day since 2008. Health insurer Anthem led the US market with a 16 per cent advance, which would mark its best day since the financial crisis. Cigna, another large health insurer, gained 11 per cent. 

The rally in healthcare stocks follows a strong performance from Joe Biden in “Super Tuesday” — the biggest primary results day for Democratic presidential contenders. This indicates the market had reduced the chances of a win for Bernie Sanders, who has made a single-payer national health insurance programme a core part of his campaign.

The strong US performance followed gains in Europe. The Stoxx 600, an index of the region’s largest companies, ended the day 1.4 per cent higher. London’s FTSE 100 rose 1.5 per cent. 

The Fed’s interest rate cut is part of a wave of central bank support to alleviate some of the worst effects of the coronavirus. Tuesday’s decision is its first emergency intervention since the peak of the financial crisis.

Pimco’s US economist Tiffany Wilding said that while rate cuts are an imperfect instrument when dealing with a global health emergency, “they can contribute to an environment where easy financial conditions buffer the economic shock, as opposed to exacerbate it.”

Trading in futures linked to the federal funds rate indicates that investors are now betting the central bank’s policy committee will make another cut at its scheduled meeting later this month.

“The Fed is likely to cut again, but how soon remains the question,” said Esty Dwek, head of global market strategy at Natixis Investment Managers. She added that other central banks “are likely to follow suit, even if their firepower is more limited.”

“The one-two punch thrown on Tuesday by the big Fed rate cut and the Biden win last night has put a floor under the stock market for now,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The coronavirus market sell-off looks to be stabilising.”

Some analysts predicted that the Fed’s move could prompt monetary and fiscal easing measures across Asia, where markets were mixed on Wednesday. The Hang Seng index closed lower while China’s CSI 300 index gained 0.6 per cent.

In South Korea, the Kospi gained 2.2 per cent after the country’s finance minister proposed extra spending of almost $10bn to offset the effects of the outbreak. On Tuesday, Australia’s central bank cut rates to an all-time low; on Wednesday the S&P ASX/200 fell 1.7 per cent. 

Traders were looking to potential stimulus measures in China, where the Covid-19 virus originated and which is home to the most cases.

Becky Liu, head of China macro strategy at Standard Chartered, said the prospect of any co-ordinated easing by G7 nations would pressure Beijing to cut rates more quickly to prevent the renminbi from strengthening too much. 

The price of Brent crude dropped 0.5 per cent to $51.58 a barrel while gold traded slightly lower at $1,635 per Troy ounce. The dollar gained 0.2 per cent for its rise in five trading sessions and the euro fell 0.4 per cent to $1.1133.

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