By Anna Isaac

Global stocks rallied Tuesday even as bond markets briefly flashed a recession signal for the first time since October.

Futures tied to the Dow Jones Industrial Average rose 0.4%, a day after the index for blue-chip U.S. stocks shed more than 450 points, as investors parsed efforts world-wide to contain a deadly virus outbreak in China. The Stoxx Europe 600 gauge edged up 0.3%, while exchanges in China and Hong Kong remained closed for the Lunar New Year holiday.

The outbreak of coronavirus, which has killed more than 100 people and infected over 4,500 in China, risks further stymying an already slowing Chinese economy, which is increasingly important for overall global growth. Travelers in recent weeks have carried the infection to other countries including the U.S., Australia, Germany and Japan.

Investors were largely expecting a slight uptick in global economic growth this year, and are now reaching for safer assets like U.S. government bonds amid rising concern about the potential impact of the Chinese outbreak, leading to the flattening of the yield curve.

"If you take China's growth out the equation, then the basis for your global growth forecast starts to fall apart," said Seema Shah, chief strategist at Principal Global Investors.

The yield on the 10-year Treasury briefly dipped below that of the three-month bill, before paring back declines to 1.620%. The three-month U.S. government debt is currently at about 1.567%.

When longer-dated debt offers smaller returns than bonds with shorter maturities, it can be an indicator of fixed-income investors' growing concern about the economy. Still, the yield curve can invert a number of times before the start of a recession: last year, markets went on to largely shrug off the event.

Ahead of the New York opening bell, McCormick dropped around 9% after the spice company's fourth-quarter revenue missed analysts' expectations and it issued disappointing guidance for 2020. Harley-Davidson fell almost 7% after the motorcycle maker reported earnings and sales that fell short of expectations.

3M slid almost 2% in premarket trading after the maker of everything from Post-it Notes to molar crowns said it would eliminate 1,500 jobs as part of a broad restructuring effort.

Over in Asia, South Korea's Kospi index ended Tuesday down 3.1%--the biggest drop since October 2018 -- after markets in the country resumed trading following the Lunar New Year holiday. The retreat was led by declines in tourism and technology stocks.

Major exchanges in Hong Kong are scheduled to open Wednesday, while bourses on the mainland will be closed until next week after Chinese authorities extended the holiday in a bid to curtail mass migration and contain the virus.

Later in the day, Starbucks and eBay are among the major U.S. companies scheduled to report earnings.

The Commerce Department is also due to release December durable-goods orders, an indicator for manufacturing health in the U.S. Economists surveyed by The Wall Street Journal estimate that orders climbed 0.2% last month.

--Caitlin Ostroff and Anna Hirtenstein contributed to this article

Write to Anna Isaac at anna.isaac@wsj.com

(END) Dow Jones Newswires

January 28, 2020 08:24 ET (13:24 GMT)

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