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Stocks cut losses, but still close in the red

Specialist Meric Greenbaum's expression reflects the grim

Specialist Meric Greenbaum's expression reflects the grim news Monday, Jan. 4, 2016, as U.S. stocks fell more than 2 percent on news of another drop in China production and increasing tensions in the Middle East. Photo Credit: AP / Richard Drew

The new year got off to an inauspicious start on Wall Street as stocks tumbled Monday in a global sell-off triggered by new fears of a slowdown in China and rising tensions in the Middle East.

The Dow Jones industrial average clawed back from a steep early decline but still ended the day down 1.6 percent, its biggest drop in two weeks. Markets in Asia and Europe suffered heavier losses.

The wave of selling on the first trading day of 2016 served as a reminder that the global worries that weighed on financial markets last year are not going away anytime soon.

“It’s going to be a turbulent year,” said Kevin Kelly, chief investment officer of Recon Capital Partners. “This isn’t a blip.”

The trouble started in China, the world’s second-largest economy, where signs of manufacturing weakness sent the Shanghai Composite Index plunging 6.9 percent before Chinese authorities halted trading by using a new “circuit-breaker” mechanism for the first time.

Investors were also unnerved by heightened tensions between Saudi Arabia, a huge oil supplier, and Iran. Saudi Arabia severed diplomatic relations over the weekend in a dispute over the Saudis’ execution of a Shia cleric.

In the United States, the Dow slumped 276.09 points to 17,148.94. It was down as much as 467 points earlier in the day.

The Standard & Poor’s 500 index lost 1.53 percent to close at 2,012.66. The Nasdaq composite fell 2.08 percent to 4,903.09.

The immediate trigger of the sell-off was a report that showed manufacturing in China fell in December for the 10th straight month.

The slowdown is worrisome around the globe because China’s manufacturers are huge buyers of raw materials, machinery and energy from other countries. Also, many automakers and consumer goods companies are hoping to sell more to increasingly wealthy Chinese households.

In the United States, slow overseas growth already appears to be hurting American manufacturers. A report issued Monday by the Institute for Supply Management showed manufacturing contracted last month at the fastest pace in more than six years as factories cut jobs and new orders shrank.

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