26/08/2015 9:34 AM AEST | Updated 15/07/2016 12:51 PM AEST

Tony Abbott Says Others May Go Down, While Australia Is On The Way Up

Specialist Michael O'Mara works on the floor of the New York Stock Exchange, Tuesday, Aug. 25, 2015. U.S. stocks jumped at the open after China's central bank cut interest rates to support its economy. (AP Photo/Richard Drew)

CANBERRA – Prime Minister Tony Abbott says the continued instability in world stock-markets is an “inevitable correction” from “overexuberance” in the Chinese market earlier this year.

Wall Street has performed some spectacular gymnastic moves in a volatile night of overnight trade as China battles to thwart a share price collapse.

After a day of gains fuelled by bargain hunters, markets produced the biggest one-day reversal since the 2008 Global Financial Crisis.

In the final hour of trade, the Dow Jones industrial average fell 204.78, or 1.3 percent, to 15,666.44., while the S&P 500 closed 1.4 per cent lower at 1,868.

Abbott has been receiving regular briefings from senior officials while traveling around remote northern Australia.

“There is continuing instability in world stock-markets. Basically due to, I suppose, over-exuberance in the Chinese market earlier in the year and the inevitable correction and slowdown in the Chinese economy,” he told reporters in Bamaga.

“We always need to remember that in a market economy, stock markets go down as well as up.

“There's no one-way escalator here. They go down, as well as up, even if, over time, the trend tends to be up. “

Earlier, China’s central bank ordered an emergency interest rate cut after two days of stock-market plunges in Shanghai.

Treasurer Joe Hockey welcomed the move by the People’s Bank of China (PBOC) which also includes limiting the amount of cash held at its banks.

“The actions by the PBOC overnight to cut interest rates and relax capital controls in China is another positive step to help the Chinese economy, “Joe Hockey told ABC News Breakfast.

The benchmark cash rate will be cut to 4.6 percent, effective today.

The move to stall further stock-market plunges follows a shock devaluation in the yuan on August 11.

Shanghai fell 8.5 percent on Monday and 7.6 percent yesterday.

There’s concern about a slowing in the world’s second largest economy, but Abbott has again called for calm.

“The important thing is that while China is slowing, the US, which remains by far the world's largest economy is picking up. There are signs of movement in Europe and our economy remains fundamentally strong.”

The Treasurer has also restated his view that world markets are going through a correction, not a crisis.

“The Australian economy is performing well, can do better but performing well. The US economy is performing relatively strongly.

“Europe's back, Japan is back, and the fundamentals in China are gradually improving from the information that we've received, for example, the Chinese property market is showing signs of recovery.”