Dow Average Falls 416 Points After Sell-Off in China

Stocks plunged in New York today after a sell-off in China rattled markets worldwide and surprisingly weak economic data fanned fears that the economy may be more vulnerable to a downturn than widely thought.

The broadest measure of stock prices, the Standard and Poor’s 500 stock index, lost more than 3 percent of its value today, its biggest drop in three and a half years. The Dow Jones industrial average fell 3.29 percent, or 416.02 points, to 12216.24.

A wide sell-off had pushed the S&P and the Dow down about 1 percent for most of the trading day. But minutes before 3 p.m., stock prices suddenly plummeted, sending the Dow briefly down more than 500 points, or 4 percent. The S&P also fell about 4 percent at the same time.

Both indexes later regained some of their value, but their gains for the year had been wiped out by Tuesday’s close.

After reaching record highs on Monday, China’s stock markets reversed course drastically today, plummeting in one of the biggest sell-offs in their history.

Analysts said there was no single reason for the plunge, but many have cautioned for months that China’s volatile, roller-coaster market, which has been soaring almost nonstop for more than a year, appeared vulnerable.

The plunge in Chinese stocks had global reverberations. Stocks fell across Europe, with the major indexes in France, Germany and Britain all dropping more than 2 percent. In the United States, trading got off to a bad start and stayed that way.

The benchmark Shanghai Composite index, which had passed the 3,000 milestone on Monday after the weeklong Chinese New Year holiday, shed 268 points, or 8.8 percent, to close at 2,771.79

The smaller Shenzhen Component index fell even further, dropping 797.87 points, or 9.3 percent, to 7,790.82.

Share prices also tumbled elsewhere in Asia, although not nearly as much. Hong Kong’s benchmark Hang Seng index dropped 412.94 points, or 1.8 percent, to 20,095.01. In Japan, the Nikkei fell 95.43 points, or 0.5 percent.

The wave of selling then spread to Europe, and later to the United States, where a government report showed that orders of durable goods — big-ticket items that include washing machines, airplanes and semiconductors — declined more than expected in January. That hastened the sell-off on Wall Street.

Chinese share prices have swung wildly in recent months, rising on huge interest from largely inexperienced retail investors in soaring stock prices, then falling on stern Chinese government warnings about “blind optimism” in the market.

The unmistakable trend, however, has been up. Share prices on the major Chinese indexes climbed more than 100 percent last year, ending a five-year stock slump.

It is too early to tell whether the decline today constitutes a healthy correction in China or the opening act of a broader collapse.

Some analysts said that rumors about new taxes on capital gains spooked some investors. Particularly hard hit were more liquid, big-cap stocks, which weigh heavily on stock indexes.

“It’s obvious that a large amount money was being pulled out of the market from big-cap stocks,” said Wu Jianxiong, an investment strategist at Guotai Junan Securities in Shanghai.

Stephen Green, a senior economist and stock market analyst working in Shanghai for Standard Chartered Bank, said the market fundamentals had not changed drastically in recent weeks, adding that the stock markets in China tended to be volatile, particularly after reaching all-time highs.

“People are just on edge,” he said. “It’s very possible in two weeks we’ll be right back up there.”