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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