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China's 'circuit breaker' stock halt triggers global market drop

By Andrew V. Pestano Follow @AVPLive9 Contact the Author   |   Jan. 4, 2016 at 8:15 AM
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WASHINGTON, Jan. 4 (UPI) -- China's use of its "circuit breaker" stock policy amid a slump and rising tensions in the Middle East have triggered a global stock market downfall.

China halted trading through its circuit-breaker system on Monday after a 7 percent drop in the CSI 300, a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen. The drop is attributed to underwhelming manufacturing data pointing to shrinking factory activity and a falling currency.

The circuit-breaker system was announced in December. It triggers a 15 minute trading halt whenever there is a 5 percent rise or fall in the CSI 300. Trading stops for the rest of the day any time there is a 7 percent move -- or a 5 percent move in the 15 minutes before the market closes.

The consequences were felt across the region. Japan's Nikkei 225 index dropped 3.1 percent and Hong Kong's Hang Seng index fell 2.6 percent. A 4.4 percent fall for tech-giant Samsung contributed to South Korea's Kospi index closing 2.2 percent lower.

In Europe, Britain's FTSE 100 fell by 2 percent, Germany's DAX index was 3.3 percent lower and France's CAC 40 dropped 2.1 percent.

Tensions between Iran and Saudi Arabia have created instability in the oil market. On Saturday, the Saudi government executed Shiite cleric Nimr al-Nimr and 46 others convicted of terror-related crimes. Al-Nimr was a rabid anti-Sunni who espoused the removal of the Sunni Muslim Saudi royal family during the so-called Arab spring in 2011.

The execution caused sharp condemnation from Iran and resulted in a diplomatic deterioration. So far on Monday, Brent Crude oil prices and U.S. crude prices rose by 3 percent and 2 percent, respectively.

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