World stocks fall as China market unravels

HONG KONG: World stocks lurched lower Wednesday, with Shanghai's index tumbling as much as 5 percent, as this year's powerful rally started to peter out amid concerns the markets were overheating.

Asia's markets were modestly higher through the morning in lethargic trade before getting whacked, with Europe following them down in early trade. Crude oil prices along with Wall Street futures gave back their early gains.

The drop came on the heels of a steep fall in world markets Monday when investors were spooked by weakness in American consumer spending and losses in Shanghai that seemed to augur an end to the five-month rally that's boosted benchmarks over 50 percent.

China again led Asia lower Wednesday.

Ample liquidity combined with hopes stronger Chinese economic growth will spill over to other countries have helped drive many of the region's markets this year. But investors have grown uneasy of late about tighter government monetary policy that could soak up the easy money.

"We've had a very strong run and people are a little unnerved by what's going on in China, so it seems like a good opportunity to take some money off the table," said Adrian Mowat, chief Asian and emerging market equities strategist at JP Morgan in Hong Kong.

The recent selling could be a good buying opportunity, Mowat said. "For the Asian markets outside China to stabilize a bit, we need to see (Chinese shares) stabilize."

As trading got under way in Europe, Britain's FTSE 100 fell 1.1 percent, Germany's DAX lost 1.5 percent and France's CAC-40 swooned 1 percent.

In Asia, Japan's benchmark Nikkei 225 stock average lost 80.96 points, or 0.8 percent, to 10,204.00.

Hong Kong's Hang Seng shed 1.7 percent to 19,954.23.

Elsewhere, South Korea's Kospi fell 0.3 percent, India's Sensex was 1.3 percent lower and Taiwan's index was flat. Australia's benchmark lost 0.2 percent. Indonesia's market, another investor favorite this year, was down 2.7 percent.

In Shanghai, the main index plunged over 5 percent at one point before closing down 125.30 points, or 4.3 percent, to 2,785.58.

The benchmark has lost nearly 20 percent since Aug. 4 on worries about corporate profits, the strength of China's recovery and possible changes in Beijing's easy credit policy that has helped to fuel the bull run in Chinese stocks this year.

"Investors are afraid there are no fundamentals to support the rally," said Cai Xiang, a Sinolink Securities analyst in the western city of Chengdu.

Overnight in the U.S, stronger-than-expected retail earnings reports and the latest reading on housing sent markets to a higher finish following a bout of heavy selling on Monday.

The Dow rose 82.60, or 0.9 percent, to 9,217.94. The Standard & Poor's 500 index gained 9.94, or 1 percent, to 989.67, while the Nasdaq composite index rose 25.08, or 1.3 percent, to 1,955.92.

In futures trading, Dow futures were down 77 points, or 0.8 percent, at 9,130 and S&P futures lost 9.4, or 1 percent, to 980.20.

Oil prices were unable to hold on their advance in Asia, losing 23 cents to $68.96 a barrel. On Tuesday, the contract gained $2.44 to settle at $69.19.

The dollar fell to 94.32 yen from 94.70 yen, while the euro fell to $1.4102 from $1.4131.