Stocks slammed by China and Fed

U.S. stocks tumbled to their lowest levels in two months as persistent worries about the Fed easing up on stimulus was aided by a plunge in Chinese stocks. Fears about China pushed the CBOE Market Volatility Index up above 21 to its highest level of the year.

By Hibah Yousuf
June 24, 2013: 11:47 AM ET
CNN Money

U.S. stocks tumbled to their lowest levels in two months Monday, as persistent worries about the Fed easing up on stimulus were exacerbated by a plunge in Chinese stocks.

The Dow Jones industrial average tumbled more than 200 points, or 1.5%, while the S&P 500 sank 1.8% and the Nasdaq lost 1.7%.

Fears about China pushed the CBOE Market Volatility Index (VIX) up above 21 to its highest level of the year. The CNNMoney Fear & Greed Index dropped further into Extreme Fear, clocking in at its lowest level since June 2012.

Commodities were under pressure amid worries about a slowdown in global economic growth. Cooper prices sank nearly 3%. Both crude oil and Brent crude prices dropped to a three-week lows.

Credit crunch in China? The People's Bank of China told the country's largest banks Monday to rein in risky loans and improve their balance sheets, a warning that sent a jolt through already unsettled equity markets.

The Shanghai Composite index was hardest hit by the announcement, registering a decline of 5.3%. The Hang Seng in Hong Kong lost nearly 3%. Japan's Nikkei index declined by 1.3%.

The sell-off comes after short-term borrowing costs skyrocketed last week in China, leading to a credit crunch. The rate at which Chinese banks lend to each other overnight hit, which serves as a measure of liquidity in the financial market, hit a record high above 13% last week before moderating. Another key measure of cash in the banking system -- the 7-day "repo rate" -- peaked at 25%.

Investors are worried that less liquidity in the world's second-largest economy could further slow the shaky global recovery.

Fed worries persist, bond yields shoot higher: Last week's comments from Federal Reserve chairman Ben Bernanke sparked a rush out of bonds. Fresh concerns about China intensified that sell-off Monday.

As investors dumped bonds, yields continued to rise, with the yield on the 10-year Treasury note hitting 2.65% early Monday. That's its highest since August 2011.

Bernanke said at a news conference last week that the central bank could slow the pace of its bond-buying program later this year if the economy continues to improve.

The Fed's stimulus program has been a major driver of the bull market, and worries over its longevity are likely to generate market volatility in the months ahead.

Stocks by the numbers: With the recent heavy selling, all three indexes are about are down about 6% from the recent highs. But they're still holding onto healthy gains year-to-date.

The Dow, S&P 500 and Nasdaq are up between 9% and 11% since the start of January.

Stocks on the move: Shares of Vanguard Health Systems (VHS, Fortune 500) surged almost 70% after inking a $1.8 billion acquisition deal with Tenet Healthcare Corp. (THC, Fortune 500)

Apple (AAPL, Fortune 500) shares fell below $400 a piece for the first time since mid-April after Jefferies' Peter Misek lowered his 12-month price target to $405 from $420. To top of page

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