Stocks Plunge After Big Drop in China

02/27/2007

NEW YORK (AP) - Wall Street fell sharply Tuesday, joining a global stock decline sparked by growing concerns that the U.S. and Chinese economies are cooling and that U.S. stocks are about to embark on a major correction. The Dow Jones industrials dropped more than 140 points.

A 9 percent slide in Chinese stocks earlier set the tone for U.S. trading, a day after investors sent Shanghai's benchmark index to a record high close.

"Corrections usually happen because of a catalyst, and this may be it," said Ed Peters, chief investment officer at PanAgora Asset Management. "The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop."

Investors' confidence has been knocked down by a slew of data showing that the economy may be decelerating more than anticipated. A Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the U.S. economy, which were raised a day earlier when former Federal Reserve Chairman Alan Greenspan said the economy may be headed for a recession.

The housing market, which the Street had been hoping was at a bottom, also looked far from recovery after a Standard & Poor's index indicated that single-family home prices across the nation were flat in December. A later report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but the data didn't erase housing-related concerns, as median home prices fell for a sixth straight month.

In late morning trading, the Dow Jones industrial average dropped 142.28, or 1.13 percent, to 12,489.98.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 17.36, or 1.20 percent, at 1,432.01, and the Nasdaq composite index was down 42.41, or 1.69 percent, at 2,462.11.

A suicide bomber attack on the main U.S. military base in Afghanistan where Vice President Dick Cheney was visiting also rattled the market.

China's stock market plummeted Tuesday from record highs as investors took profits when concerns arose that the Chinese government may try to temper its ballooning economy by raising interest rates again or reducing more of the money available for lending.

The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share prices doubled last year as investors poured money into the market after the completion of shareholding reforms, trading in Shanghai has been very volatile.

Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and Malaysia's Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei stock average fell a more moderate 0.52 percent, but European markets were rattled - Britain's FTSE 100 was down 2.07 percent, Germany's DAX index was down 2.49 percent, and France's CAC-40 was down 2.90 percent.

Bond prices rose as investors bought into the safe-haven Treasury market, with the yield on the benchmark 10-year Treasury note dropping to 4.60 percent from 4.63 percent late Monday. The bond buying was sparked primarily by the durable goods orders, which the Commerce Department said fell 7.8 percent, much more than what the market expected.

A Conference Board index showing that consumer confidence in the U.S. economy rose unexpectedly in February failed to move the stock or bond markets.

Oil prices fell Tuesday on worries that Chinese demand could be dampened should its economy slow down, but later pared most of their losses - adding yet another worry to the stock market, that fuel costs could keep going up even amid signs of a slow economy. Crude slipped 6 cents to $61.33 a barrel on the New York Mercantile Exchange, after falling more than a dollar in earlier trading.

The dollar slipped against other major currencies, while gold also fell.

The Dow has been climbing at a steady rate since last summer, but over the past few trading sessions, stocks have pulled back on the worry that the market is due for a correction. Many analysts have noted that the Dow hasn't seen a 2 percent decline in more than 120 sessions.Declining issues outnumbered advancers by about 6 to 1 on the New York Stock Exchange, where volume came to 654.6 million shares.

The Russell 2000 index of smaller companies was down 15.78, or 1.92 percent, at 807.91.

Stocks across all sectors were lower, and General Electric was the only Dow component that was up by late morning trading. GE rose 16 cents to $35.50, after the company was upgraded by UBS.

NYSE-listed shares of Chinese companies plunged. China Mobile Ltd. (CHL) tumbled $3.58, or 7.3 percent, to $45.70. Mindray Medical International Ltd. (MR) dropped $2.46, or 8.6 percent, to $26.25. China Eastern Airlines Corp. (CEA) fell $5.07, or 15 percent, to $28.68.

On the Nasdaq, Internet company Baidu.com Inc. (BIDU) fell $4.44, or 4 percent, to $107.27. Shanda Interactive Entertainment Ltd. (SNDA), which develops online games, fell 95 cents, or 3.8 percent, to $23.97. Netease.com Inc. (NTES) fell 68 cents, or 3.1 percent, to $21.13.

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