"The ferocious velocity of the first few minutes in China caught some people by surprise", said Rob Bernstone, managing director in equity trading at Credit Suisse in NY. The new mechanism adds to trading restrictions that include a 10 percent limit on daily swings for individual stocks and a so-called T+1 rule preventing investors from buying and selling the same shares in a single day. The breakdown of relations between Iran and Saudi Arabia has put a bid into oil. Saudi Arabia executed a prominent Shiite cleric, prompting protesters to set fire to the Saudi Embassy in Tehran. The S&P 500 opened 30 points, or 1.5%, lower at 2,014.
"China is volatile, [but] I don`t think this makes any difference" to Europe and the US, said Jonathan Bell, chief investment officer at Stanhope Capital, which oversees $9.5 billion in assets. "This isn`t a blip".
Monday marks the worst start to the year for the S&P 500 since 2001 and the worst start for the Dow since 1932.
European indexes have been down by two to four percent. Britain`s FTSE 100 fell 2.4 per cent to 6,090.76 while France`s CAC 40 dropped 2.7 per cent to 4,514.03. Analysts said selling in Chinese markets was also driven by other factors, including the scheduled lifting of bans on IPOs and sales by larger investors.
A separate report from the Commerce Department showed an unexpected decrease in construction spending in the month of November.
Elsewhere in Asia, Japan`s Nikkei 225 tumbled 3.1 percent and Hong Kong`s Hang Seng retreated 2.7 percent.
The Brazilian real fell 2% against the dollar and Brazilian equities dropped 1.6% to 42,646.19, its lowest since March 16, 2007.
It could also further dent confidence in the China Securities Regulatory Commission (CSRC) and of the wider financial regulatory framework to manage increasingly complex markets even as China`s economy struggles against major headwinds.
The China sell-off was sparked by a factory activity survey showing a contraction for the 10th consecutive month as well as falls in its yuan currency. Bahrain severed diplomatic ties with Iran on Monday following Saudi Arabia`s decision to cut ties with Iran on Sunday.
Escalating tensions in the Middle East pushed up the price of oil, analysts said.
The figures from the Institute for Supply Management suggest the troubles of a year ago - slow overseas growth, a US strong dollar and low oil prices - will likely continue to dampen USA manufacturing in 2016. In more recent trading, oil was up 2% to $37.75. It was down as much as 467 points earlier in the day.
In the USA, the Dow slumped 276.09 points to 17,148.94. Netflix and Amazon, both of which more than doubled in price in 2015, were down sharply.
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