Factiva

Every major stock market, and nearly every stock, suddenly got cheaper yesterday. And, like the price chopping on so many store shelves, it all started in China.

A wave of selling swept over world markets, spreading from China across Europe to North and South America and wiping $46 billion from the value of the main Toronto market index.

In the United States, where $737 billion in stock market value vanished, it was the biggest sell-off since Sept. 11, 2001.

The selling continued this morning across much of Asia amid jitters about a sell-off in China's stock market and a worries about a slowdown in the Chinese and U.S. economies.

Shares in Tokyo, Hong Kong, Singapore, Malaysia, Australia, New Zealand, the Philippines and Indonesia all fell more than 3 per cent in morning trading.

In China, stocks modestly recovered from their 9 per cent plunge yesterday, the biggest drop in a decade. The Shanghai Composite Index was up 1.2 percent to 2,804.28.

No one could point to a single trigger, but possible reasons ranged from a rumoured move by the Chinese government to impose a capital gains tax on stocks, to comments by former Federal Reserve Board chair Alan Greenspan, speaking in Hong Kong, that the U.S. could slip into recession later this year, to simple profit taking.

Yesterday, the Shanghai market fell 8.8 per cent just a day after hitting a record high. Markets in Europe and North America fell roughly 3 per cent, and Mexico and Brazil 6 per cent.

Certainly, rapid growth in China has played a big part in pushing up prices for energy and metals, while keeping a damper on wages, consumer goods and interest rates. It has become a bellwether for optimism.

Yet the shock waves set off when too many of China's speculators decided to take profits came as a surprise, said Martin Hubbes, chief investment officer at AGF Funds Inc.

"Most managers were not surprised by the sharp pullback in the Chinese market," he said. "What surprised us was the extent it took the rest of the markets with it."

Markets around the world have been riding high on the wings of rising profits and growing economies, but there have been signs of a slowdown in the important U.S. economy.

Jim Rogers, a veteran hedge fund manager who co-founded the Quantum fund with George Soros in the 1970s, said the plunge in China may have exposed the fact that problems are developing. "When you have major stock declines, they always start in the marginal countries, sectors and companies."  /我好生纳闷，这在暗讽我们是marginal countries吗？劲搞笑/

Every stock in Toronto's S&P/TSX composite index finished the day lower, with mining stocks down nearly 5 per cent as a group and the market as a whole down 2.72 per cent.

Economist Ted Carmichael at JP Morgan Chase Canada said, "you had a number of factors that were probably each and of themselves not enough to trigger a big sell-off."

Some Chinese investors were reacting to a rumour - denied today by the Chinese finance ministry - that the government plans to impose a 20 per cent tax on capital gains. Chinese share prices have doubled in the past year, providing huge potential capital gains.

Other investors may have picked up on a comment from Greenspan that a recession in the U.S. is "possible" this year after five years of economic expansion, although Carmichael said it was clear Greenspan was not actually predicting one.

"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 (points for the Shanghai composite index) as a psychological benchmark. It's understandable they might want to pull back after the market hit that peak."

The Shanghai market had one-day drops of 4.9 per cent and 3.7 per cent in January before surging to a record high of 3,040.6 points on Monday.

Also hurting North American markets were economic reports of a larger-than-expected drop in U.S. shipments of manufactured goods, a decline in resale housing prices and problems in the mortgage market.

Things looked like they had turned from bad to worse about 3 p.m. when the Dow Jones industrial average plunged about 200 points in a matter of seconds, taking it down 546 points.

It turned out that computers at Dow Jones & Co. were not properly calculating trades during a period with a record volume of trading so the company switched to its backup system.

The Dow recovered, yet closed down 415 points (3.29 per cent).

With files from the Star's wire services

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