- The Washington Times - Tuesday, February 27, 2007

NEW YORK (AP) — Stocks plummeted today, hurtling the Dow Jones Industrial Average down more than 500 points at 3 p.m. to 12,086 as Wall Street joined a global market plunge sparked by growing concerns that the U.S. and Chinese economies are cooling and that prices of equities have become overinflated.

A 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai’s benchmark index to a record-high close, set the tone for U.S. trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a precipitous plunge at about 2:45 p.m.

Investors’ dwindling confidence was knocked down further by 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, just a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession.

One day after sending Shanghai’s benchmark index to a record high, investors dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from Beijing to slow the nation’s sizzling economy. The Shanghai Composite Index tumbled 8.8 percent to close at 2.772, its largest decline since it fell 8.9 percent on Feb. 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping.

Meanwhile, the price of oil fell on speculation that a slowing Chinese economy would slice into demand for fuel. A barrel of light, sweet crude was down 56 cents $60.83 in premarket trading on the New York Mercantile Exchange.

“The [rumors] that China is going to impose a capital gains tax resulted in regional markets falling,” said S. Sharath, an analyst with MIDF-Amanah Investment Bank in Kuala Lumpur, Malaysia, where the benchmark index tumbled 2.8 percent.

But Mr. Greenspan’s comments also took a heavy toll on Asian markets.

“Our economy is also dependent on the U.S. economy; if there is adverse news, exports from our country is going to drop,” Mr. Sharath said.

In Hong Kong, the benchmark Hang Seng Index tumbled 1.8 percent, while Singapore’s Straits Times index sank 2.3 percent. Markets in Japan and Taiwan registered modest declines.

The plunge spilled over to New York, where the Dow Jones Industrial Average was down more than 130 points, or about 1 percent, after falling 15 points yesterday. In London, the FTSE-100 dropped 2.31 percent, France’s CAC 40 dropped 3.02 percent and Germany’s DAX lost 2.96 percent.

Chinese share prices doubled last year as investors piled into the market following the completion of shareholding reforms that helped to reduce worries over a potential flood of shares entering the market.

But stocks have been volatile this year, with the Shanghai index notching one-day drops of 4.9 percent and 3.7 percent in January, before recovering to hit new highs. Yesterday, it closed at a record 3,041.

Today, market heavyweights plunged on heavy selling by institutional investors, which in turn spooked retail investors who decided to cash in their recent gains rather than risk losing them in a severe market decline.

“The most important reason for today’s decline was pressure for profit-taking,” said Peng Yunliang, a senior analyst at Shanghai Securities. “People viewed 3,000 as a psychological benchmark. It’s understandable they might want to pull back after the market hit that peak.”

China’s economy last year grew 10.7 percent — the highest rate since 1995— and a central bank report at the beginning of the year estimated it would expand 9.8 this year.

Banks yesterday were required to raise the amount of money they must hold in reserve to 10 percent from 9.5 percent, reducing the amount available for lending. Authorities had last raised the reserve ratio on Jan. 15. The government, worried that excessive borrowing could trigger a debt crisis, also raised interest rates twice last year.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide