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U.S. Stocks Plunge; China Triggers Global Rout; Treasuries Jump

Eric Martin

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acks in New York and Washington. All but two companies in the Standard & Poor's 500 Index declined.

The plunge in China ``exposed the fact that there are problems developing,'' said Jim Rogers, who co-founded the Quantum hedge fund with George Soros in the 1970s. ``When you have major stock declines, they always start in marginal countries, sectors and companies.''

The Dow average sank 416.02, or 3.3 percent, to 12,216.24. The S&P 500 retreated 50.33, or 3.5 percent, to 1399.04. The Nasdaq Composite Index dropped 96.66, or 3.9 percent, to 2407.86.

``This is a fairly violent selloff,'' said Russ Koesterich, a portfolio manager at Barclays Global Investors in San Francisco, which has $1.7 trillion in assets.

Treasuries

Treasuries climbed as the rout in stocks and global bonds bolstered demand for the safest debt.

Yields on benchmark 10-year notes fell to the lowest since December as the plunge in Chinese shares set off concern investors will shy away from riskier assets. Two-year notes gained the most since August 2004. Delinquencies and defaults on bonds backed by mortgage loans to people with poor credit histories helped fuel the rally in Treasuries.

``A flight to quality and fear in the risk markets are propping up government markets,'' said George Goncalves, an interest-rate strategist in New York at Banc of America Securities LLC, one of the 21 primary dealers required to participate in Treasury auctions.

The yield on the benchmark 10-year note fell more than 11 basis points, or 0.11 percentage point, to 4.51 percent, according to New York-based bond broker Cantor Fitzgerald LP. It was the biggest drop since Dec. 3, 2004, when employment growth slowed. The yield touched 4.4485 percent, the lowest since Dec. 6, 2006.

Emerging Markets

Emerging-market bonds and currencies fell as the tumble in Chinese stocks curbed investor demand for riskier assets.

The average spread for emerging-market bonds over U.S. Treasuries rose to the highest since Dec. 7 after China's main stock market index sank 9.2 percent, the biggest drop in a decade. Brazil's real, Turkey's lira and the South African rand led a slump in developing-nation currencies.

``It started off with China and then with U.S. stocks, which is leading to risk-averse behavior,'' said Matias Silvani, who helps manage $4.7 billion of emerging-market debt at JPMorgan Asset Management in New York. ``In times like these, correlation across markets increases.''

Emerging-market bond yield spreads surged 17 basis points to 1.89 percentage points, leaving them up 25 basis points from a record low of 1.64 points on Feb. 22, according to JPMorgan Chase & Co.'s EMBI Plus index. A basis point is 0.01 percentage point.

Brazil's real fell 1.8 percent to 2.1197 per dollar from 2.0825 reais per dollar yesterday. Turkey's lira sank 1.8 percent to 1.4097 per dollar and the South African rand dropped 2.2 percent to 7.2337 per dollar.

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

Oil Climbs

Crude oil rose to the highest close this year on speculation U.S. fuel inventories declined because refineries are repairing units.

Gasoline supplies fell 1.5 million barrels in the week ended Feb. 23, according to the median of forecasts by 15 analysts before an Energy Department report tomorrow. Stockpiles of distillate fuel, including heating oil and diesel, dropped 2.6 million barrels. In February and March refiners perform maintenance and start maximizing gasoline output.

Crude oil for April delivery rose 7 cents to $61.46 a barrel on the New York Mercantile Exchange, the highest close since Dec. 22. Futures touched $62.25, the highest intraday price since Dec. 26. Prices are up 0.8 percent from a year ago.

Gold prices dropped as the plunge in equities prompted investors to bail out of precious metals.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net .