BEIJING—China made a surprise move to cut the cost of capital for businesses and reform its creaking approach to setting interest rates, a shift that signals the depth of concern among leaders about the unfolding European crisis and its impact on China's economy.

The People's Bank of China moved on Thursday to cut the benchmark interest rate for savers and borrowers by a quarter of a percent. The cut, which takes the one-year lending rate to 6.31%, is the first since December 2008, and aims to reduce the cost of borrowing across the economy, pushing investment and growth higher.

Markets around the world cheered the move. The Australian dollar, which is highly sensitive to Chinese demand for raw materials, rose by 0.3% against the U.S. dollar when the move was announced. Stock markets in Europe and the U.S. rose, though Wall Street pared its gains after U.S. Federal Reserve Chairman Ben Bernanke stopped short of signaling new stimulus measures in a testimony to Congress.

Meanwhile, global commodity prices from soy beans to oil all moved higher after China's rate cut, which follows a swathe of data that signaled fading growth both in China and abroad. China's industrial output growth in April disappointed at 9.3%, down from 11.9% in March and the lowest level since the financial crisis. In the U.S., May jobs data disappointed, and the unemployment rate rose to 8.2%.

A spiraling debt crisis in Europe—China's biggest export partner—is also weighing on leaders' minds. China's exports to Europe contracted 2.0% in the first four months of the year. Lou Jiwei, the head of China Investment Corporation, China's sovereign-wealth fund, thought there could be worse to come. "There is a risk the euro zone may fall apart and that risk is rising," he said.