Asian markets plunge after Wall Street drops 1,000 points

The Chinese stock market dropped 5.5% on Friday, part of a week-long sell-off that saw Wall Street plummet by more than 1,000 points on Thursday.

Other Asian markets also slumped as the Dow entered "correction" territory for the first time in two years.

The Shanghai Composite Index dipped 5.5% but recovered slightly to end morning trading down 4.1% at 3,127.91. Tokyo's Nikkei 225 was off 3.2% at 21,180.28 and Hong Kong's Hang Seng fell 4.2% to 29,142.87.

Financial analysts have downplayed the correction as a normal market event, but say the latest drop was triggered by a combination of events that rattled investors, including concern over a potential rise in US inflation or interest rates and budget disputes in Washington that could lead to a government shutdown.

"Markets are down again today, maybe unnerved by fears that the US Senate will not pass a budget bill in time to avoid a US government shutdown," said Rob Carnell of ING in a report. "With financial markets vulnerable at the moment, this was not great timing for such political brinksmanship."

Market trading boards show loses at the Australian Securities Exchange in Sydney, Friday, February 9, 2018. Credit: PA

Chinese markets fell despite unexpected strongly trade data on Thursday.

In Europe, markets were unnerved on Thursday by the Bank of England's indication that it could raise its key interest rate in coming months due to stronger global economic growth. Germany's DAX lost 2.6% while France's CAC 40 ended down 2%. The FTSE 100 fell 1.5%.

After hitting a high two weeks ago, US stocks started to tumble last week after the Labour Department said workers' wages grew at a fast rate in January.

Investors worried rising wages will hurt corporate profits and could signal an increase in inflation that could prompt the Federal Reserve to raise interest rates at a faster pace, putting a brake on the economy.

Since then, the Dow and the Standard & Poor's 500 have fallen 10%, Wall Street's traditional definition of a correction.

The market, currently in its second-longest bull run of all time, had not seen a correction for two years, an unusually long time. Many market watchers have predicted a pullback for some time, saying stock prices have become too expensive relative to company earnings.

"We may have seen the worst, but it's too early to say for sure. However, our view remains that it's just another correction," said Shane Oliver of AMP Capital in a report.