Markets dive and China worries flare

United States stocks tumbled to two-month lows Wednesday as fears about China's economy slowing down led to more widespread selling. The price of oil plunged to its lowest level since 2008 on the prospect that global demand could fall further.

For the second time in three days, markets slumped on concerns about that the second-largest economy in the world is stumbling. A monthly survey of China's service industries slipped to a 17-month low. That helped knock the price of oil lower since China is a major consumer of energy.

Global markets were also rattled after North Korea said it had conducted its first successful test of a hydrogen bomb. Experts in South Korea and the US doubted that the country had made that breakthrough, but the announcement still caused alarm.

The Dow Jones Industrial Average dropped 252.15 points, or 1.5 per cent, to 16,906.51. The Standard & Poor's 500 index lost 26.45 points, or 1.3 per cent, to 1,990.26, for its fourth loss in five days. The Nasdaq composite gave up 55.67 points, or 1.1 per cent, to 4,835.76.

US benchmark crude sank US$2, or 5.6 per cent, to close at US$33.97 a barrel in New York, its lowest price since December 2008. Brent crude, a benchmark for international oils, fell US$2.19, or 6 per cent, to close at US$34.23 a barrel in London.

France's CAC 40 shed 1.3 per cent and Germany's DAX dropped 0.9 per cent. Britain's FTSE 100 fell 1 per cent. Japan's Nikkei 225 index lost 1 per cent and South Korea's Kospi fell 0.3 per cent. Hong Kong's Hang Seng shed 1 per cent. The Shanghai Composite Index in mainland China rebounded 2.3 per cent as the Chinese government said it will keep some market-stabilising measures in place.

Stocks also plunged Monday on signs of weakness in China's manufacturing sector. The Shanghai Composite skidded almost 7 per cent that day and also fell on Tuesday.

Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute, said the market was overreacting to the latest signs of weakness in China.

"Stocks are not trading on fundamentals," he said. "They're trading on fear that Chinese growth is going to collapse and that these lower oil prices are going to lead to a growing number of defaults in the high-yield bond market."

Other energy prices also slipped. Heating oil sank 4.5 cents, or 4 per cent, to US$1.081 a gallon. Natural gas declined 5.6 cents, or 2.5 per cent, to US$2.267 per 1,000 cubic feet.