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Stock markets shudder after Chinese stock plunge forces trading halt

 
Trader Christopher Lotito, center, works on the floor of the New York Stock Exchange on Thursday. U.S. stocks opened sharply lower, part of a difficult start to the new year for stocks worldwide as they react to the slide in China’s market.
Trader Christopher Lotito, center, works on the floor of the New York Stock Exchange on Thursday. U.S. stocks opened sharply lower, part of a difficult start to the new year for stocks worldwide as they react to the slide in China’s market.
Published Jan. 8, 2016

HONG KONG — The market turmoil in China spread around the world Thursday, as global investors grew more anxious about the country's currency and the health of its economy.

Major market indexes in the United States ended the day down more than 2 percent.

Earlier, Chinese stocks plunged more than 7 percent, forcing officials for the second time this week to halt trading for the day — in this case, after just 29 minutes.

After the market mess, Chinese authorities made a stark reversal, suspending a market mechanism — known as a circuit breaker — that halted trading when losses reached a threshold. The measure, put into effect just this week and intended to help stabilize stocks, may have instead intensified investors' concerns.

The big question now: How much of the turmoil reflects rule changes and other policies in the Chinese stock market, and how much is based on broader economic fundamentals that might have a further impact on global growth?

The market aftershocks spread to Europe and the United States. The benchmark Standard & Poor's 500 index closed down 2.4 percent Thursday to its lowest level since the start of October. The Dow Jones Industrial Average ended down 2.3 percent, while the Nasdaq composite finished down 3.03 percent.

Still, U.S. investors appeared to be less panicked than during a similar selloff in August, also triggered by concerns about Chinese growth.

"We don't see this as an issue for a major selloff in the markets," said Timothy M. Ghriskey, chief investment officer at the Solaris Group. "People are responding like there is nothing new here."

It has been a rocky start to the new year in global markets. The big fear is that China's economy, the world's second largest after the United States, is slowing down and crimping growth in other countries.

Markets "are in a panic over what's happening in China," said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London. "People are saying, 'Whoa, growth is way worse than we were expecting this year.' "

China's currency, the yuan, continued to be a sore spot Thursday.

The Chinese government, which closely controls the yuan, has been allowing the value of the currency to decline steadily as a way to bolster the economy, as a weaker yuan helps exporters, a key engine of growth. But it is a difficult process to manage. A falling currency is pushing companies and individuals to send money out of the country at a rapid rate, putting additional pressure on the yuan and unsettling investors.

The currency problems risk setting off a chain reaction. As the yuan keeps sliding day after day, traders start to expect ever greater declines. The falling currency can then propel further stock losses in China. That, in turn, can ripple through to the global markets.