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Asian Stocks Add to Global Rout After China's Slump; BHP Drops

Asian stocks fell the most in more than eight months, extending a global selloff sparked by the biggest plunge in Chinese shares in a decade. BHP Billiton Ltd. and Posco led declines.

In the U.S, the Dow Jones Industrial Average dropped as much as 546 points, the most since the first trading day after the Sept. 11, 2001, terrorist attacks. Chinese stocks yesterday fell the most since 1997 after the government took measures to crack down on excess speculation that had driven shares to records.

``This will reverberate in Asian markets again today,'' said Shane Oliver, who helps manage about $64 billion at AMP Ltd. in Sydney. ``China's market has been poised for a correction for some time, which has made other Asian markets vulnerable too.''

The Morgan Stanley Capital International Asia-Pacific Index fell 3.3 percent to 143.80 at 11.30 a.m. in Tokyo after rising to a record yesterday. The gauge was set for its biggest drop since June 13. Chinese markets opened down, and swung between gains and losses.

Japan's Nikkei 225 Stock Average slumped 3.6 percent, set for the biggest drop since June 13. Toyota Motor Co. added to declines after the yen strengthened against the dollar in New York, eroding the value of exporters' sales.

Singapore's Straits Times Index plunged 5.3 percent while Malaysia's Kuala Lumpur composite Index tumbled 8.1 percent, leading declines elsewhere in the region. Stocks in China and Hong Kong may also slide for a second day, after the American depositary receipts of China Mobile Ltd., the world's largest mobile-phone operator by users, slumped 10 percent.

The Dow fell 3.3 percent while the Standard & Poor's 500 Index lost 3.5 percent, wiping out their year-to-date gains. The Nasdaq Composite Index slid 3.9 percent, its steepest drop since July 2002. Europe's Dow Jones Stoxx 600 Index slid 3 percent and emerging markets dropped.

China Tumbles

Shares also fell after U.S. durable goods orders fell 7.8 percent in January, reflecting the biggest slide in business equipment demand in three years, according to figures released yesterday by the Commerce Department in Washington.

China's Shanghai and Shenzhen 300 Index yesterday slumped 9.2 percent, also from a record. It had jumped 13 percent in the previous six sessions. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, plunged 8.8 percent, the steepest drop since Feb. 18, 1997. The rout wiped out $107.8 billion from the market value of China's companies, which had doubled in the past year.

Stocks fell after the State Council, China's highest ruling body, approved a special task force to clamp down on illegal share offerings and other banned activities in the market.

Commodities Hit

China's government has introduced several measures over the past year to calm the stock market. Banks were urged to stop lending money for stock investments and to recall outstanding loans, the China Banking Regulatory Commission said Dec. 31. The People's Bank of China, the central bank, ordered banks to boost reserves four times in the past year to reduce money available for investment.

``With capital flows being so global it's hard for action in a large country like China not to have an effect on other markets,'' said Amanda Smith, who helps manage $6 billion at ING New Zealand Ltd. in Auckland.

BHP, the world's biggest mining company by market value and production, lost 5 percent to A$27.40. Fiscal first-half sales to China rose 36 percent to $4 billion from a year earlier, the company said. Rio Tinto Group, the second-biggest by market value and third by production, dropped 3.9 percent to A$76.49. It generated 16 percent of its total sales from China in 2006.

`Worry'

``Commodities stocks are the losers because whenever something like this happens, investors worry about the implications for global growth,'' said Tom Murphy, who manages about $1 billion in Asian assets at Deutsche Bank AG in Sydney.

Posco, the world's third-largest steelmaker, slumped 4.3 percent to 356,500 won. China was the company's largest market after South Korea in 2005.

Korea Zinc Co., the world's biggest smelter of the metal, fell 3.8 percent to 90,600 won. Nippon Mining Holdings Inc., Japan's biggest copper producer, dropped 6.8 percent to 972 yen.

Toyota, Japan's largest automaker, dropped 4.1 percent to 8,000 yen. Matsushita Electric Industrial Co., the world's No. 1 maker of consumer electronics, lost 3.5 percent to 2,380 yen, while Sony Corp., the second largest, tumbled 6 percent to 6,130 yen.

The yen rose the most in more than 19 months against the dollar amid a sell-off in U.S. stocks and as investors shunned emerging-market assets, prompting an unwinding of trades betting on a decline in the Japanese currency.

The currency rose 2.3 percent to 117.93 against the dollar late in New York yesterday, the biggest gain since July 2005. It was little changed at 118.15 recently.

China ADRs Slump

``China's drop yesterday shocked risk-money investors, as did the yen's climb,'' said Mitsushige Akino, who oversees about $468 million in assets at Ichiyoshi Investment Management Co. in Tokyo. ``Stocks should fall across the board.''

China Mobile's ADRs fell 10 percent to $44.16 in New York. Its Hong Kong-traded stock yesterday slipped 2.9 percent to HK$74.90. ADRs of China Life Insurance Co., the country's biggest life insurer, fell 8.8 percent to $38.48. The stock fell 3.8 percent to HK$21.65 in Hong Kong yesterday and lost 9 percent to 33.89 yuan on the mainland.

Brilliance China Automotive Holdings Ltd., the Chinese partner of Bayerische Motoren Werke AG, tumbled 12 percent to $24.30 in New York. The stock fell 6.9 percent in Hong Kong yesterday.

Hong Kong's Hang Seng Index yesterday lost 1.8 percent. The Hang Seng China Enterprises Index, which tracks the so-called H shares of 37 mainland companies, fell 3.1 percent.

``It's not just a one-day drop,'' said Andy Mantel, managing director of Pacific Sun Investment Management in Hong Kong. ``There's more room in the downside. My strategy is to increase in cash and shorts.''

China stocks open down but quickly recover

China's main stock index opened lower on Wednesday but recovered quickly and moved into positive territory as heavily weighted financial blue chips climbed.

The benchmark Shanghai Composite Index (.SSEC: Quote, Profile, Research) opened down 1.34 percent, but after five minutes stood 1.18 percent higher at 2,804.454 points.

On Tuesday the market plunged 8.84 percent, its biggest fall in a decade, in a sell-off that jolted global financial markets.

Analysts said Chinese investors remained nervous after Tuesday's rout but recently created funds had entered the market to accumulate shares for long-term investment.

Officials denied various rumors that fueled Tuesday's tumble, including talk that China might impose a stock capital gains tax and that the head of the securities regulator might step down.

In addition, investors believe the government, which wants to list big state firms on the market this year, will not permit a collapse that could endanger those plans, traders said.

Many see good technical support for the index at the February low of 2,541, from which it bounced sharply early in the month.

"The situation is not too bad. The market should stay in a range of 2,500 to 3,000 for a while," said Zhang Qi, analyst at Haitong Securities, adding that Tuesday's drop was probably not the start of a bear market.

Swiftness of Dow Drop Due to Computers

A computer glitch triggered a sudden plunge in the Dow Jones industrial average at mid-afternoon Tuesday, turning an already bad day in stocks into a head-turning spectacle. Dow Jones & Co., the media company that manages the well-known index of 30 blue chip stocks, said it discovered shortly before 2 p.m. that its computers weren't properly handling the day's huge volume in trades at the New York Stock Exchange.

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It switched to a backup computer, and the result was a massive swoon in the index as the secondary system took over processing shortly before 3 p.m.

The Dow plunged about 200 points almost instantly, and was down as much as 546 points -- its worst single-session decline in more than five years, and one that sent the blue chips into negative territory for the year.

"I've never seen a collapse like that, and I've only been doing this for 47 years," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc.

The heavy volume of some 4.5 billion trades, almost double the average, came on a day in which investors worldwide were rattled by a nearly 9 percent drop in Chinese stocks overnight. Investors, draped in concerns that stocks were overvalued and that economic weakness was at hand, began crying "sell" from the outset.

"The market's extraordinary trading volume caused a delay in the Dow Jones data systems," said Dow Jones spokeswoman Sybille Reitz. "We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average."

The sheer number of sell orders caused a bottleneck, where some traders reported that systems were slow to respond.

Despite the delays, the closing prices on Tuesday were accurate, the exchanges said.

The NYSE said none of the delays were related to its hybrid trading system, which combines trades executed by floor brokers with those that are fully automated. The Big Board suspended its electronic platform to bring about an orderly close, and reverted trading to floor brokers.

A spokesman said the exchange expects an orderly opening on Wednesday.

The Dow closed down 416.02, or 3.29 percent, at 12,216.24; the Standard & Poor's 500 index fell 50.33, or 3.47 percent, to 1,399.04; and the tech-dominated Nasdaq composite index was off 96.66, or 3.86 percent, at 2,407.86.

"It was literally seconds. I had never seen anything like that before," said Ryan Larson, senior equity trader at Voyager Asset Management, a subsidiary of RBC Dain Rauscher. "The nature of a trader is you're very skeptical of everything. I just needed to find to find out that it was real."

To the chagrin of many investors, the drop was indeed real.

Todd Leone, managing director of equity trading at Cowen & Co., said trading became difficult.

"Some of the books froze up," he said, referring to the systems in which traders place their orders. "You couldn't really trade. You couldn't really make sales." He said orders appeared to become backed up. "Once they unfroze the Dow fell."

There are safeguards to keep such pullbacks from getting out of hand.

One measure, known as trading collars, kicked into effect Tuesday shortly after 1 p.m. when the New York Stock Exchange Composite index lost more than 180 points. That index ended the day down 342.03 points, or 3.6 percent.

The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.

There are also more draconian measures that weren't invoked Tuesday. Known as "circuit breakers," these safeguards force traders to take a time-out. The Big Board developed these measures following the October 1987 crash and a mini-crash in October 1989.

The drop Tuesday, however unnerving, wasn't the 1,250 point decline in the Dow industrials that would've been required to suspend trading. While the rules vary depending on the time of day and the severity of the drop, the exchange can halt trading for as little as a half hour to two hours, or in some cases, end the day's session early.

Greaves Cotton plunges 18 pc

The stock of Greaves Cotton plummeted by more than 18 per cent on Tuesday on the BSE on rumours that Piaggio is likely to set up a plant in India. Given that 30-35 per cent of the company's revenue comes from Piaggio, this news is expected to dampen its future prospects.

Greaves Cotton manufactures diesel engines for Piaggio. Dealers also said that a leading domestic fund, which holds more than six per cent equity in the company, had turned seller on this counter. The stock closed at Rs 322.55, down 18.23 per cent