Former Federal Reserve Chairman Alan Greenspan, who said a recession in the U.S. was “possible” later this year, may have been the catalyst for the global sell-off. On Monday, Greenspan said, “It is possible we can get a recession in the latter months of 2007.” On Tuesday, one day after sending Shanghai’s benchmark index to a record, investors dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from Beijing to slow the nation’s sizzling economy. The Shanghai Composite Index tumbled 8.8 percent, or 268.81 points, to close at 2,771.79, its largest decline since it fell 8.9 percent Feb. 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping. “The (rumors) that China is going to impose a capital-gains tax resulted in regional markets falling,” said S. Sharath, an analyst with MIDF-Amanah Investment Bank in Kuala Lumpur, Malaysia, where the benchmark index tumbled 2.8 percent. Chinese regulators shifted into damage control today, with a government-run newspaper denying rumors of plans for a 20 percent capital-gains tax on stock investments. SHANGHAI, China – Like an explosion that starts an avalanche, a plunge in Chinese stocks Tuesday set off a cascade of losses in exchanges around the globe, culminating in Wall Street’s most dismal trading day since the Sept. 11, 2001, terrorist attacks. By the end of the trading day in New York, about $632 billion of market value had been lost in the United States alone, according to Standard and Poor’s, as investors large and small – fretting that the Chinese and U.S. economies might be cooling – unloaded shares. Chinese stocks fell almost 9 percent, their biggest drop in a decade. The Dow Jones Industrial Average lost 416.02, or 3.3 percent, to 12,216.24. The main indexes on European exchanges also fell about 3 percent. The bloodletting continued when trading began in Asia today. Australia’s benchmark S&P/ASX200 index slumped 3.45 percent in the first 30 minutes of trading. In Japan, the Nikkei 225 stock index fell 693.50 points, or 3.83 percent, to 17,426.42 points on the Tokyo Stock Exchange about 20 minutes after the start of trade. New Zealand’s stock market fell more than 3 percent in hectic trading early today. But Greenspan’s comments also took a heavy toll on Asian markets. “Our economy is also dependent on the U.S. economy, if there is adverse news, exports from our country is going to drop,” Sharath said. In Hong Kong, the benchmark Hang Seng Index tumbled 1.8 percent, while Singapore’s Straits Times index sank 2.3 percent. Markets in Japan and Taiwan, however, registered only modest declines. Chinese share prices doubled last year as investors piled into the market following the completion of share-holding reforms that helped to reduce worries over a potential flood of shares entering the market. But stocks have been extremely volatile this year, with the Shanghai index notching one-day drops of 4.9 percent and 3.7 percent in January – before recovering to hit new highs. On Monday, it closed at a record 3,040.60. Tuesday, market heavyweights plunged on heavy selling by institutional investors, which in turn spooked retail investors who decided to cash in their recent gains rather than risk losing them in a severe market decline. “The most important reason for today’s decline was pressure for profit-taking,” said Peng Yunliang, a senior analyst at Shanghai Securities. “People viewed 3,000 as a psychological benchmark. It’s understandable they might want to pull back after the market hit that peak.” China’s economy grew 10.7 percent last year – the fastest rise since 1995 – and a central bank report at the beginning of the year estimated it would expand 9.8 this year. On Monday, Chinese banks were required to raise the amount of money they must hold in reserve to 10 percent from 9.5 percent, reducing the amount available for lending. Authorities had last raised the reserve ratio Jan. 15. The government, worried that excessive borrowing could trigger a debt crisis, also raised interest rates twice last year.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!