China has cut its one-year benchmark interest rate by 0.25 percentage points to 4.35%
European shares gained ground following the decision, particularly in the mining sector,
and commodities rose.
The Chinese central bank also cut the ratio of Chinese currency that it expects its banks to hold.
China hopes that looser monetary policy, in the shape of cheaper money, will help it hit
its growth target of 7% for 2015.
The changes will come into effect on Saturday.
Analysis by Andrew Walker, economics correspondent, BBC World Service
The decision from the People's Bank of China suggests a concern that the slowdown in growth
might be becoming too abrupt.
Official figures published earlier this week told a different story. They suggested a very moderate
weakening in the third quarter of the year. But Beijing's data are widely regarded as unreliable.
Lower interest rates tend to stimulate borrowing by consumers and businesses and so could
contain the slowdown, but there is a risk the move could lead to a build up of debt - and
some economists say China is in danger of having a financial crisis.
In London, shares in the benchmark FTSE 100 index rose 1.3%, led by miners Glencore and Fresnillo,
which added 7% and 4% respectively. The Dax in Frankfurt rose 3.0%.
Brent crude was up 0.8% to $48.46 per barrel.
China's economy has grow at an average annual rate of 10% for the past three decades,
but has been cooling in the past few years.
Last year it grew by 7.4%, which is extraordinary by Western standards,
but a definite slowdown for China.
There is little doubt that its economy is slowing to a more sustainable rate of growth,
with the question being whether that transition can be made smoothly.