Aussie market's remarkable turnaround

A man watches trading activities as an electronic share board is seen at the Australian Stock Exchange in Sydney on August 25, 2015. Photo / Getty Images

Everyone loves a bargain: so much, in fact, that the threat of a second global financial crisis looks to be off the table for now.

Traders' fears the Australian market would extend its four per cent losses from Monday's session following heavy overnight falls in the US and Europe had looked justified within minutes of trade opening on Tuesday.

The benchmark S&P/ASX 200 and the All Ordinaries both dived by 1.5 per cent to below the 5,000 point mark before a remarkable turnaround spurred by bargain hunters piling in despite another dismal day for Shanghai stocks.

At the close, the ASX 200 was up 2.7 per cent at 5,137.3 points, its biggest single day gain since October 2011.

Fat Prophets chief executive Angus Geddes said investors had snapped out of a "negative feedback loop" and realised there was money to be made in an Australian market that had already given up all its gains for the year before Monday's carnage.

"There's a sense of rationalism returning to the market today, whereas in the last couple of days it's been fear and sentiment driven," Mr Geddes said.

"They got out of bed today and thought: 'The ASX is at 5,000; I can buy banks at prices they've not been at for years'."

Commonwealth Bank shares, which had lost about a quarter of their value since nearing $100 in March, rose 3.6 per cent to $75.08. NAB, ANZ and Westpac all rose by more than four per cent.

"Reporting season hasn't been that bad in Australia. A lot of risk is off the table and we've got that value staring us in the face," Mr Geddes said.

Patersons Securities economist Tony Farnham said upward movement in New York's post-trade Dow Futures had kickstarted the buying.

"The markets were moving as one in the early markets but the US decided all of a sudden it was time to buy back in," Mr Farnham said.

"That cheered the market."

The same couldn't be said about the Shanghai Composite Index, which lost about seven per cent on top of Monday's 8.49 per cent.

"The Chinese stock market went from 2,000 to 5,000 in the space of a year: there was always going to be a correction and it's been a doozy of a correction," Mr Geddes said.

"It's silly for us to be down four per cent when China's down four per cent. We haven't had the same level of speculation and that's why we've detached."

Mr Geddes said Chinese investors had been spooked by Monday's lack of government intervention.

That meddling resumed on Tuesday, with China's central bank injecting 150 billion yuan ($A32.12 billion) into the money market to ease tight liquidity.

Mr Geddes tipped overnight gains of about two per cent on Wall Street and in London.

"I don't think this is the start of another global financial crisis; anything but. This is a correction to what's been going on in China and to global foreign exchange markets," he said.

"It's going to take a few weeks or a couple of months before we're out of the woods but we may have seen the end of the largest declines," Mr Geddes said.