Brians DD 3783

Dow plunges 400-plus points

Enormous waves of selling send U.S. stocks plunging in a�global sell-off prompted by a�market�crash in China.�The Dow briefly shows a 540-point loss before bargain hunters step in. Toyota will build a plant near Tupelo, Miss. Federated Department Stores might become known as simply Macy's.

Stocks were suffering their worst losses today since just after the Sept. 11, 2001 terror attacks, prompted by a huge sell-off in China's stock market, higher oil prices and disappointing economic news.

The Dow Jones industrials briefly were down as much as 545 points before recovering. At 3:30 p.m. ET, the blue-chip index was down 398 points to 12,233, a decline of 3.2%. The Nasdaq Composite Index plunged more than 86 points or 3.5% to 2.418. The Standard & Poor's 500 Index tumbled more than 48 points, 3.3%, to 1,401.

If the loss holds, it will be the biggest for the Dow since Sept. 20, 2001 when the blue-chip index fell 383 points or 4.4% to 8,376. The biggest point loss ever occurred three days earlier, when markets reopened after terrorists flew airliners into the twin towers of the World Trade Center.

The selling was accelerated by a huge wave of program trading that sold stocks and pushed money to the relative safety of bonds. The 10-year Treasury index yield fell from 4.6% to 4.5%.

Crude oil, down in the morning, rallied in the afternoon to $61.40.

The Dow shed 200 points between 2:45 p.m. and 3 p.m. Bargain hunters began pouring money into the market and cutting a 500-point loss to 400 points within another 15 minutes.

The Dow was headed to its fifth straight loss, the longest losing streak since it fell every day for six sessions between Oct. 27 and Nov. 3, 2006.

"It looks like investors are focusing on geopolitical concerns again," Peter Cardillo, chief market economist with Avalon Partners, told CNNMoney.com.

The Chinese markets startled investors around the world, he said. Indexes in France and Germany were both off about 3%. The suicide bombing attack at the main U.S. military base in Afghanistan just as Vice President Dick Cheney was visiting also rattled markets.

All 30 stocks in the Dow were lower, along with 485 stocks in the S&P 500. DuPont (DD, news, msgs) was the Dow's biggest loser, down nearly 6.9% to $49.50. The closest stock to a winner among Dow stocks was General Electric (GE, news, msgs), down 1.75% at $47.38.

A bid to curb speculation slams Chinese stocks

The selling was prompted by fears that authorities would crack down on speculation that drove shares to record highs. The market soared 130% last year, making it the world's best-performing major market.

"This kind of terrifying fall means the market has become abnormal," analyst Chen Huiqin at Huatai Securities told Reuters, adding that shares could take a while to stabilize even if negative rumors about government policy proved false.

The market was hit by several negative rumors in late trade, including talk that authorities would take strong steps to cool speculative activity, Reuters reported.

The Chinese government announced on Sunday that it had set up a top-level task force to clamp down on illegal securities trading. Authorities had already signaled that another crackdown was coming, and it is not clear how harsh it will be.

There was talk of an imminent interest rate increase after poor inflation data in the past two months. The central bank raised bank reserve requirements on Sunday.

"Anything that challenges the abundance of global liquidity is a matter of concern," Luca Sega, a money manager for Aperta Sgr in Milan, told Bloomberg News. "The Chinese government seems to be on the case of stopping the investment boom, and we could see some serious repercussions if other countries move in that direction."

A market slump in China should not be a surprise. "Markets get ahead of themselves, and you do have to have a correction at some point," Allen Sinai of Decision Economics told CNBC. "The U.S. data softness is part of the U.S. correction. I wouldn't be surprised to see the U.S. equity market correct some more."

Separately, Wal-Mart Stores (WMT, news, msgs) said it was buying a stake in Trust-Mart, a Taiwanese-owned retailer that operates in China. The U.S. retail giant said it would buy a 35% stake.