Stocks fell sharply Monday as investors continue reacting to news of tightening from central banks in the U.S. and in China.
The Standard & Poor's 500 Index (INDEXSP:.INX) was down about 1.4 percent, the Dow Jones Industrial Average (INDEXDJX:.DJI) was down about 1 percent (around 147 points), and the Nasdaq Composite (INDEXNASDAQ:.IXIC) was down about 1.2 percent in afternoon trading following a rough day for Asian and European shares.
The widespread fear among traders has spilled over from last week after the chairman of the Federal Reserve announced that the U.S. central bank will soon begin the process of scaling back its stimulus program. U.S. stocks dropped on the news and sent the Standard & Poor's 500 Index (INDEXSP:.INX) down 2.1 percent at Friday's close, its lowest point since April 19.
The drops continued on Monday after China's central bank announced efforts to clean up its banking system by slowing its growth rate. The People's Bank of China told lenders it would not use open-market operations to ease the cash crunch, essentially telling them that they must improve how they manage their cash and loans. The bank aims to move China away from credit-driven investment. The news sent Shanghai stocks down more than 5 percent.
"At present, the overall liquidity in China's banking system is at a reasonable level," the PBOC said in a statement released on its website earlier today. "But due to many changing factors in the financial markets and also because of the mid-year point the requirements for commercial banks in liquidity management have become higher."