China fears spark stock sell off

U.S. stocks tumbled on Tuesday, driving the Dow Jones industrial average down in its worst slide since the aftermath of the September 11 attacks, as a sell-off in China's stock market raised concerns that equity valuations may be too high.

The Australian market echoed the US market but the fall was more limited with the ASX 200 down by about 3 per cent.

In London overnight, BHP Billiton - a big supplier of minerals to China - plunged 6 per cent and was dwon 5 per cent in local markets.

"This is a fear-driven sell off," Commsec's Craig James said. "The correction was well and truly overdue."

A U.S. government report showing a bigger-than-expected drop in January's new orders for U.S.-made durable goods added to investors' concerns about the outlook for economic growth and corporate profits.

Those worries added more fuel to the sell-off and helped contribute to a loss of about $600 billion in market value for the day, wiping out this year's gains in one day.

The New York Stock Exchange's closing bell was greeted with a chorus of "boos" from the trading floor. A surge in trading volume triggered a technical glitch in late afternoon, contributing to an abrupt swing in the Dow average, which briefly fell 500 points. A Dow Jones Indexes spokeswoman said the glitch did not affect stock prices.

Investors dumped stocks with the biggest exposure to Chinese demand, including Caterpillar Inc., whose shares slid 3.6 percent, while Tuesday's sell-off wiped out the year's gains for all three major U.S. stock indexes.

"There seems to be just an air of nothing is safe anymore, there's nowhere to go and people are rotating into bonds as a safe haven," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.