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Chinese stocks' plunge raises doubts about worldwide recovery

LONDON — China's main Shanghai stock index plummeted 6.7 percent Monday to 2,697.70, adding to a nearly 3 percent decline Friday, dragging down most of the world's major markets and raising more fears that any global economic recovery could be shaky.

In Asia, Hong Kong's Hang Seng lost 1.9 percent and Tokyo's Nikkei 225 stock average lost 41.61 points, or 0.4 percent, to 10,492.53 after jumping more than 200 points earlier.

The drop in U.S. stocks Monday was broad, and a 48-point, or 0.5 percent, drop in the Dow Jones Industrial Average was the biggest in two weeks. The S&P 500 index fell 8.31, or 0.8 percent, to 1,020.62, while the Nasdaq fell 19.71, or 1 percent, to 2,009.06.

Germany's DAX 30 blue-chip index fell 1.1 percent to 5,458.04, while France's CAC-40 was down 1.07 percent at 3653.34.

The London Stock Exchange was closed for a public holiday, and trading volumes were light on the last day of August, with no major data releases to give further direction on trading.

Recent dips in Chinese shares have sent ripples throughout markets in Europe and the United States, since China has continued to grow during the world recession. But massive government stimulus efforts have raised fears that China might not be able to maintain its growth rate and help pull the world out of recession.

Oliver Roth of Close Brothers Seydler Bank AG in Frankfurt said investors were concerned about possible trouble in China after huge amounts of government stimulus.

"The difference between the rest of the world and China is that in China, the huge money amounts that are coming from the central bank are already in the economy, so there is a bubble of a huge amount of liquidity in the real economy and the stock market," Roth said. "And people are afraid of a blowing-up of the bubble."

Chinese share prices rose more than 80 percent earlier this year before falling back in mid August. The monthslong rally coincided with unprecedented lending aimed at fighting off the economic downturn.

Many in China believe a big chunk of the lending found its way into property and share markets, though the extent to which such funds were illicitly diverted into speculative investments remains unclear.

Chinese stocks' plunge raises doubts about worldwide recovery 08/31/09 [Last modified: Monday, August 31, 2009 9:31pm]
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