By Will Horner

Global stocks advanced Monday, as proposed Chinese tax cuts drove bumper gains for Chinese equities that fed into milder increases for U.S. and European markets.

Both the S&P 500 and the Dow Jones Industrial Average rose less than 0.1% in the opening minutes of trading Monday.

The Shenzhen A Share index was up nearly 5% while the Shanghai Composite was up around 4%, continuing a rally in Chinese stocks that began at the end of last week. Japan's Nikkei was up 0.4%.

The Stoxx Europe 600 was up 0.4%. The Italian FTSE MIB was up 0.3% and yields on the nation's bonds fell after an Italian credit-rating downgrade came, in line with expectations. Yields move inversely to prices.

In China, the strong gains for stocks were fueled by a proposed cut in personal income tax Saturday, said Geoffrey Yu, head of the U.K. investment office at UBS Global Wealth Management.

"When it comes to thinking about Chinese stimulus, the government is finally starting to get the message and is focusing on tax reform and away from investment," Mr. Yu said. "If this can help the Chinese household it doesn't just help China, it helps the world."

The measures could boost retails sales by about 1%, said Jim Reid, an analyst at Deutsche Bank, in a note to clients, adding that the bank believes they are part of a series of tax cuts.

"These measures would help to offset the downside risks from the trade war, and keep growth in 2019 above 6%," Mr. Reid said.

On Friday, Chinese stocks had begun the day lower but rebounded after positive statements from officials about the health of the nation's economy.

In Europe, investors breathed a sigh of relief after Moody's announcement Friday that it was downgrading Italy's credit rating, removing an uncertainty that had been troubling investors.

Moody's cut the rating from Baa3 to Baa2, the lowest investment-grade rating, and assigned Italy a "stable" outlook, better than the "negative" outlook that had been feared.

S&P Global Ratings will release its own review of Italy's rating at the end of this week.

Italian bonds sold off Friday before rallying slightly. However, in a worrying sign for investors, the selling of bonds Friday spread to other Southern European nations, raising the specter of contagion.

"If we have entered a period of more broad-based contagion, it'll clearly increase the probability of a policy response by the ECB and other European policy makers to the turmoil," said Erik F. Nielsen, chief economist of UniCredit, in a note to clients.

In the week ahead, attention will be on an investment conference in Saudi Arabia taking place Tuesday. U.S. Treasury Secretary Steven Mnuchin, JPMorgan CEO James Dimon and BlackRock head Larry Fink, among others, have pulled out of the so-called "Davos in the desert" due to the killing of Saudi journalist Jamal Khashoggi in the nation's consulate in Istanbul.

The dollar edged higher, with the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, up 0.2%.

In commodities, gold was down 0.4% and Brent crude was up 0.3%.

(END) Dow Jones Newswires

October 22, 2018 09:56 ET (13:56 GMT)

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