U.S. stocks sink amid renewed worries over emerging markets

NEW YORK -- Stocks tumbled more than 1% in early trading as investors fretted over the strength of developing counties’ economies. The sell-off also came as the Federal Reserve continues to scale back its massive injections of easy money into the financial system.

Major U.S. indexes followed European stock markets into a steep slide in early trading on Wall Street. The Dow Jones industrial average dropped 207.71 points, or 1.31%, to 15,640.90.

The broader Standard & Poor’s 500 index fell 18.99 points, or 1.1%, to 1,775.20. The technology-heavy Nasdaq composite index fell 39.26, or 1%, to 4,083.36.

Hungary’s currency was the latest in the emerging markets to fall sharply. Investors have been exiting currencies and bonds issued by emerging-market counties amid fears of an economic slowdown and the end of the Fed’s stimulus program.

The Fed announced this week it could continue scaling back its massive bond-buying program known as quantitative easing. By buying long-term bonds, the Fed has pushed down interest rates to make borrowing costs cheaper as a way to stimulate economic growth.

Lower interest rates have nudged investors into riskier assets like stocks, leading to a 30% rise last yaer in the S&P; 500. Emerging markets have gained too, but those gains have been reversing.

“The emerging markets were a huge beneficiary of the extraordinary liquidity that was put into play,” Dan Veru, chief investment officer of Palisade Capital Management in Fort Lee, N.J. “I just think you’re just going through this adjustment period now.”

A major concern emerged last week after an economic report pointed to a slump in manufacturing output for China, the world’s second-largest economy. To prevent an investor exodus from emerging markets, central banks of countries such as India, South Africa and Turkey raised interest rates as their currencies tumbled.

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