Stocks sell off on growth fears

Updated: 2015-09-02 11:09

By Bloomberg(China Daily USA)

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Stocks sell off on growth fears

A trader watches numbers at the New York Stock Exchange on Tuesday. Stocks plunged after weak data from China heightened fears of an economic slowdown. Lucas Jackson / Reuters

US stocks joined a worldwide selloff on Tuesday - following equities' worst month in more than three years - amid continuing concerns that China's slowdown will weigh on the global economy.

Also, a report on Tuesday showed that US factories expanded in August at the slowest pace since May 2013 as anemic demand from emerging market translated into leaner factory order books. A measure of exports matched the weakest reading since April 2009.

The weak manufacturing data surface ahead of the Federal Reserve's September policy meeting in which it will debate whether the economy is strong enough to withstand an increase in interest rates as overseas economies slow.

"Markets may have overemphasized China's impact, but markets are also in relatively bad shape, and we're getting more negative technical signals," said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich, Switzerland. "It's a close call for the Fed, and as long as markets are in turbulence, I don't think it will raise rates. If the markets remain too turbulent, they will postpone to October."

Energy shares fell for the first time in five sessions as oil retreated after the commodity's strongest three-day rally since 1990. Exxon Mobil Corp and ConocoPhillips slumped more than 2.8 percent.

Banks were among the hardest hit, with Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co losing at least 4.1 percent. Apple Inc and Microsoft Corp sank more than 3.9 percent to drag down technology shares. The Standard & Poor's 500 Index slid 3 percent to 1,913.85 at 4 pm in New York, its third-worst drop this year. It's a sour start to September, historically the worst month of the year, with the equity gauge falling 1.1 percent on average going back to 1927, according to data compiled by Bloomberg. The Dow Jones Industrial Average sank 469.68 points, or 2.8 percent, to 16,058.35. The Nasdaq Composite Index lost 2.9 percent.

"The problem is, as much as China is the catalyst for this, it's also that we're seeing weakness in fundamentals here," said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. "A lot of company earnings were hurt by China in the second quarter, and it's only gotten worse. People are losing confidence with the whole situation there breaking down, not just in the stock market but in data as well."

"The market is still unsure how much of a correction to make," said Tailan Chi, professor at the University of Kansas School of Business. "The relatively low official PMI (purchasing managers index) figure from China today just made some investors more nervous and triggered another correction to the upward swing that occurred when the market thought that the initial correction in mid-August probably went too far."

"The market is worried about more bad news from China and whether China's leaders can make an effective response of stimulus plus reform," said David Dollar, senior fellow at the Brookings Institution's John L Thornton China Center in Washington.

The Shanghai Composite Index fell by as much as 4.8 percent after manufacturing reports pointed to a deepening Chinese economic slowdown.

Remarks by Fed Vice-Chairman Stanley Fischer last week suggested that the central bank hasn't ruled out raising rates when policymakers gather from Sept 16-17, heightening concerns that the Fed may increase rates even as global growth slows.

Fed Bank of Boston President Eric Rosengren said that uncertainty over inflation and global growth justify a modest pace of rate increases, regardless of when the Fed tightens.

Among the American depositary receipts of Chinese companies trading in the US, Alibaba Group Holding Ltd was down $1.29 to $64.83; Inc was lower by $3.68 to $143.57, and PetroChina Co Ltd fell $5.80 to $77.74.

Paul Welitzkin in New York contributed to this story.