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Wall Street took heavy losses in choppy action as traders fretted about mounting financial instability in China and volatility in Treasury markets.
The Dow Jones Industrial Average slid 140 points, or 0.94%, to 14660, the S&P 500 dropped 19.3 points, or 1.2%, to 1573 and the Nasdaq Composite skidded 36.5 points, or 1.1%, to 3321.
The markets took their heaviest losses since April last week after details on the Federal Reserve's plans to scale back its bond-buying program shook traders' confidence in the world economy. That gloomy sentiment cascaded into Monday, with markets in Asia and Europe taking a beating, and then U.S. stocks tumbling. However, Wall Street mounted a comeback in late trading.
Defensive sectors, like utilities, telecommunications and consumer staples helped drive the rebound. Meanwhile, materials and industrial stocks, both seen as sensitive to economic changes, fared the worst.
Traders broadly pointed to a mix of factors for fresh tension in global markets.
One growing concern has been instability in China's credit markets. The People's Bank of China issued a statement saying it would "fine-tune" its monetary policy, according to analysts at Nomura. The Japan-based investment bank said it is "not convinced that the policy stance has shifted from tightening to loosening."
There have been worries brewing that a rapid expansion in China's lending markets will lead to troubles for banks there. Indeed, Moody's sliced its outlook on Hong Kong's banking sector to "negative" over concerns "persistent negative real interest rates and potential property bubbles in the territory, and banks' growing exposures to Mainland China, all of which may contribute to adverse future operating conditions for Hong Kong banks."
In a sign of the growing turmoil in Asia, the Shanghai Shenzen CSI 300, a benchmark barometer for China markets, nose dived 6.3% on the day.
U.S. Treasury bonds came under continued selling pressure as well as traders continued worrying about the Fed's plans to exit its asset-purchase program. The benchmark 10-year yield jumped 0.097 percentage point to 2.641%. The rate has surged some 60% since hitting a low in May -- which is the biggest lurch higher over that time frame since 1962, according to Dan Greenhaus, chief global strategist at market-maker BTIG.
There are no major economic reports on tap for Monday. However, several key reports are out throughout the week, including three on the housing market and two on consumer sentiment.
On the corporate front, Tenet Healthcare (NYSE:THC) said it will buy Vanguard Health (NYSE:VHC) in a deal valued at $4.3 billion. Meanwhile, Citigroup (NYSE:C) will be the first U.S. bank to open operations in Iraq.
In commodities, gold continued sliding after plummeting last week. The precious metal fell $14.90, or 1.2%, to $1,277 a troy ounce. Oil rallied $1.49, or 1.6%, to $95.18 a barrel. Wholesale New York Harbor gasoline was down 2 cents to $2.738 a gallon.