Stocks Slump on China Rate Hike Fears

Stocks and commodities fell sharply Friday amid anxiety that China will hike interest rates to keep its economy from overheating. The Dow Jones Industrial Average ($INDU) slumped as much as 139 points at one point in the session as gold and oil prices likewise plunged.

The blue-chip Dow closed down 91 points, or 0.8%, at 11,193. The broader S&P 500 ($SPX) lost 14 points, or 1.2%, to settle at 1,199. The tech-heavy Nasdaq Composite ($COMPX) shed 37 points, or 1.5%, to 2,518.

The selling started overnight when Asian markets tumbled on concern the Chinese central bank would tighten monetary policy to combat rampant inflation. The Chinese benchmark Shanghai Composite index plunged more than 5%, its worst drubbing in 14 months.

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The prospect of reduced demand from China slammed commodities across the board, and hurt materials and energy stocks particularly hard. Alcoa (AA), ExxonMobil (XOM) and Chevron (CVX) were among the Dow's worst performers. Oil closed down $3.21, or 3.7%, at $84.60 a barrel on the Comex division of the New York Mercantile Exchange (NYX). Gold futures slumped $34, or 2.5%, to close at $1,369 an ounce on the Comex.

In economic news, the best reading on consumer sentiment in five months did little for traders' spirits. The Thomson Reuters/University of Michigan reading on consumer sentiment came in at 69.3 in November, up from 67.7 in October and slightly higher than economists' expectations.

Stocks hit their worst slump in three months this week, but Friday's selling was more of a knee-jerk reaction to what happened in Asian markets overnight than a change of direction for traders, says Joe Greco, managing director at Meridian Equity Partners.

"The markets rallied into the mid-term elections and quantitative easing last week," Greco says. "This week's action and Friday's action is still part of the process of selling the news."

For more on Greco's take from the floor of the New York Stock Exchange (NYX), see the video above.