Stock markets down on growing concern about coronavirus in China

Stocks fell on Wall Street in afternoon trading Tuesday amid global jitters about a virus outbreak in China.

The slide came on the first trading day of a holiday-shortened week in the U.S. and followed losses in global markets amid deepening concerns that the new coronavirus spreading in the world's second-largest economy could hurt tourism and ultimately economic growth and corporate profits.

Canada's main stock index fell for the first time in seven sessions on concerns about the outbreak. The S&P/TSX composite index closed down 25.11 points at 17,572.28.

Six people have died, and 291 have been infected in China, just as the country was preparing for its peak travel season over the Lunar New Year travel.

A U.S. citizen who recently returned from China was diagnosed with the new virus in the Seattle area, making the United States the fifth country to report a case, following China, Thailand, Japan and South Korea.

"From an investment standpoint, the risk with any virus is in the scope of its economic impact, and the mere fact that this has spread from China overnight to the U.S. so quickly reinforces the idea that the negative fallout could be global rather than local," said Alec Young, managing director of Global Markets Research for FTSE Russell.

From an investment standpoint, the risk with any virus is in the scope of its economic impact.- Alex Young, FTSE Russell

Asian stocks closed sharply lower. European markets also fell. Within the S&P 500, stocks of U.S. companies that cater to Chinese tourists had some of the biggest losses, along with general travel companies, such as casinos and airlines.

Industrial, financial and energy companies were among those that declined. Those losses outweighed gains in defensive sector stocks, including real estate, utilities and household goods makers. Traders also shifted money into U.S. government bonds, sending yields lower.

Transportation industry hit hard during SARS

Investors are looking at playbooks for past outbreaks, such as SARS in 2002-2003, where airlines, railways and other transportation companies saw their stocks slide the most, followed by retailers and hospitality companies, according to strategists at Jefferies.

Headlines about the spreading coronavirus have given investors an excuse to take profits following the market's recent record-setting run. The three major U.S. stock indexes were coming off all-time highs set Friday. The S&P 500 hasn't had a single-day drop of more than 1 per cent since October.

"Investors have shown a lot of optimism, and that might make some a little bit skittish," said Willie Delwiche, investment strategist at Baird. "Valuations are elevated. In this sort of environment, I don't think it takes much of a headline to trigger a reaction."

Tuesday's drop for the index follows a strong run. Fears of a possible recession have faded, and investors expect the Federal Reserve to keep interest rates low, and the S&P 500 has risen in 13 of the last 15 weeks.

In New York, the Dow Jones industrial average was down 152.06 points at 29,196.04. The S&P 500 index was down 8.83 points at 3,320.79, while the Nasdaq composite was down 18.13 points at 9,370.81.

The Canadian dollar traded for 76.53 cents US compared with an average of 76.61 cents US on Monday.

The March crude contract was down 20 cents US$58.38 per barrel and the February natural gas contract was down 10.8 cents at US$1.90 per mmBTU.

The February gold contract was down $2.40 US at $1,557.90 an ounce, and the March copper contract was down 5.2 cents at $2.79 a pound.

Credit downgrade for Hong Kong

Hong Kong's Hang Seng index sank 2.8 per cent Tuesday to 27,985.33 after Moody's Investors Service cut Hong Kong's credit rating by one notch to Aa3 from Aa2.

Moody's cited the lack of "tangible plans" to respond to issues highlighted by six-month-old anti-government protests and said that may reflect "weaker inherent institutional capacity" than previously thought.

The protests began in June over a proposed extradition law and have expanded to include demands for greater democracy in the Chinese territory.