Stocks tumble as China taps brakes

NEW YORK – Industrial stocks stumbled Friday after China said it would take more steps to keep its economy from growing too fast.

The Dow Jones industrial averaged closed down 45 points but had fallen as much as 160 points. Shares of three Dow stocks with extensive business overseas – Alcoa, Boeing and General Electric – all fell more than 1 percent.

Regulators in China are trying to keep the nation’s rapid economic growth from getting out of hand. But investors worry that a slowdown in China could disrupt a U.S. recovery by hurting exports and profits of companies that do business there.

Just the whiff of a slowdown in China was enough to batter shares of industrial companies and materials producers. That’s because a slower-growing Chinese economy would mean weaker demand for industrial goods like metals and jet engines. Commodities prices also fell, which hurt companies that rely on oil, copper and other basic materials to make money.

Richard C. Kang, chief investment officer and director of research at Emerging Global Advisors in Ridgewood, N.J., said big U.S. companies now look to developing markets like China for a growing part of their sales, so the strength of foreign economies is crucial.

“Every investor always thought ‘China builds, Wal-Mart sells. End of story,’ ” Kang said. “If you look at the U.S. and who they export to, China is very quickly going up that list.”

The surprise announcement out of China came a day after a tame inflation report there raised hopes that the country wouldn’t have to do more to put the brakes on its supercharged economy.

China’s move to curtail lending was only the latest development to rattle traders. The stock market has fallen from 15-month highs in the past four weeks as investors recoil from policy fights in Washington and from economic problems popping up in Europe, such as Greece’s debt crisis.