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Dow tumbles more than 700 points as trade war fears intensify

The Dow Jones industrial average closed down 723 points, or nearly 3%, to 23,959. It was the blue-chip average's worst point-decline since Feb. 8, when it fell more than 1,000 points.
Traders work on the floor of the New York Stock Exchange after the Federal Reserve raised interest raites, a move that investors expected on March 21, 2018. (Photo: Spencer Platt, Getty Images)

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

The Dow Jones industrial average closed down 723 points, or nearly 3%, to 23,959. It was the blue-chip average's worst point-decline since Feb. 8, when it fell more than 1,000 points. The tech-packed Nasdaq slid 2.4% and the broad Standard & Poor's 500 stock index dropped 2.5%.

Wall Street got confirmation from President Trump that the U.S. is aiming for tariffs on $60 billion of Chinese imports, a move that has increased worries of a global trade war and retaliation from Beijing. Under a memorandum signed at the White House, Trump ordered the U.S. trade representative to develop a list of specific tariffs within 15 days; that list would be subject to a period of public comment before they take effect.

Threat of a trade war topped the list of fears of money managers in a survey released Tuesday by Bank of America Merrill Lynch.

Growing uncertainty as to how the growing friction over trade will ultimately play out -- and how bad it will get -- is a major market concern.

"The biggest threat is retaliation and where it all ends," says Craig Erlam, senior market analyst at OANDA, a currency trading firm with offices in New York.

Trade wars are bad for the global economy, as they cause prices that consumers and businesses pay for goods and services to rise. A rise in inflationary pressures could prompt the U.S. central bank to speed up their pace of interest rate hikes, which could slow economic growth.

For now, investors are downplaying the odds of a broad global shift towards protectionism and a big fight between the U.S. and China.

"Neither China or the U.S. wants to engage in a trade war," says Plaza. "It is a lose-lose situation for both parties."

Still, at this point, Wall Street is not buying into the narrative that a full-blown trade war is imminent, notes Rob Plaza, senior equity analyst at Key Private Bank in Cleveland.

"Investors think it is basically a negotiating tactic" that the president is using to improve the country's trade deals, says Plaza.

The market selloff follows Wednesday's decision by the Federal Reserve to boost its key interest rate by a quarter percentage point but keep its forecast for three hikes in 2018, not the four Wall Street had feared.

Still, investors appear to be balking at the Fed signaling that the pace of rate hikes could be quicker than anticipated in 2019 and beyond.

Wall Street was also watching shares of social media giant Facebook closely after its CEO Mark Zuckerberg in media interviews focused on the company's data privacy controversy. He noted that Facebook had made mistakes and that he would consider appearing before Congress to address the breach.

Facebook shares, which are down more than 12% from its Feb. 1 high, fell 2.6%.

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