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By Stephen Kirkland & Jeremy Herron, Bloomberg Business–

Concerns China’s economy is faltering torpedoed stocks around the world for a second day and fueled demand for the safety of gold and Treasuries.

American equities attempted a comeback in afternoon trading, as the Standard & Poor’s 500 Index trimmed its decline to 0.5 percent as of 1:25 p.m., paring a 1.5 percent slide. The rebound came too late for European stocks, which plunged 2.7 percent for the biggest one-day rout since October. China’s yuan led a slide in Asian currencies, and emerging-market shares plunged.

The dollar retreated, while Treasuries got a boost as investors speculated that the yuan’s devaluation will slow inflation globally. That led to bets that the Federal Reserve may delay raising interest rates, while a weaker U.S. currency boosted the appeal of some commodities.

“China is a big growth driver around the world, so there’s a certain risk to global growth,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “If the world economy turns out to be weaker, the Fed will keep an eye on the dollar.”

The S&P 500’s drop sent it careening through its 200-day moving average, a level that has halted previous selloffs this year. The gauge’s comeback has stalled at that mark.

The U.S. financial-services industry was among the worst-performing sectors as U.S. government debt rallied. Bank shares had surged in recent months amid expectations that a Federal Reserve rate increase will expand lending margins and boost profits.

Traders pushed down the odds on a September rate increase by the Fed to about 40 percent on Wednesday, from 54 percent as recently as Aug. 7, according to data compiled by Bloomberg.

The yield on 10-year Treasury notes slid two basis points to 2.12 percent. The Bloomberg Dollar Spot Index slipped 0.8 percent to a three-week low, as European currencies led developed-market gains in foreign-exchange markets.

China’s decision on Tuesday to devalue the yuan and shift to a more market-determined rate sparked concern that any slowdown in the world’s second-largest economy will spill over to the European and American markets.

Data Wednesday showed fixed-asset investment in China grew at the slowest pace since December 2000 in July, while the rate of expansion for retail sales and industrial production also weakened.

“In an emotional environment like this fundamentals don’t necessary play entirely into it,” Gene Peroni, a fund manager at Advisors Asset Management Inc. in Conshohocken, Pennsylvania, said in a phone interview. His firm oversees $14.7 billion. “You have reactive behavior and investors scrambling trying to reorient their portfolios and play the guessing game of what the ramifications are here.”

The devaluation is designed to cushion the yuan from strengthening along with the dollar after a projected interest-rate increase in the U.S., according to Goldman Sachs Group Inc.

“This is about Fed liftoff most obviously and further dollar strength,” Robin Brooks, chief currency strategist at Goldman Sachs in New York, wrote in a note to clients. “It certainly makes sense for China’s policy makers to buy some flexibility ahead of Fed liftoff.”

Emerging-market currencies bore the brunt of selling in reaction. Vietnam widened the trading band on its currency Wednesday, underscoring the risk of competitive devaluations that’s dragging down exchange rates from Brazil to South Korea.

Developing-nation stocks extended declines in a bear market, with the MSCI Emerging Markets Index losing 1.2 percent.

Gold rose for a fifth day, the longest stretch since May, as China’s devaluation spurred demand for haven assets. Bullion advanced 0.9 percent to $1,118.25 an ounce.