U.S. stocks claw back from an early plunge with boost from report of slower rate hikes

U.S. stocks clawed most of their way back from a deep slide Thursday that at one point had wiped out the market's gains for the year.

An early plunge briefly knocked more than 700 points off the Dow Jones Industrial Average as the arrest of a senior Chinese technology executive threatened to cause another flare-up in tensions between Washington and Beijing.

The sell-off eased by late afternoon, however, after the Wall Street Journal reported that the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favouring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.

"The Fed is trying to, in essence, come out and make it clear they are not on a rigid schedule of rate hikes next year," said Quincy Krosby, chief market strategist at Prudential Financial.

The S&P 500 index fell 4.11 points, or 0.2 per cent, to 2,695.95. The benchmark index had been down as much as 2.9 per cent.

The Dow dropped 79.40 points, or 0.3 per cent, to 24,947.67. The average briefly slumped as much as 784 points.

Canada's main stock exchange, the S&P/TSX composite index fell 245.64, or 1.62 per cent) to 14,937.00.

The technology-heavy Nasdaq composite reversed an early loss to finish with a gain, adding 29.83 points, or 0.4 per  cent, to 7,188.26.

Traders move to bonds

Traders continued to shovel money into bonds, a signal that they see weakness in the economy ahead. The yield on the 10-year Treasury note fell to 2.89 per cent from 2.92 per cent on Tuesday, a large move.

U.S. stock and bond trading were closed Wednesday because of a national day of mourning for former president George H.W. Bush.

Losses in banks and energy and industrial stocks outweighed gains in internet and real estate companies.

Last week, stocks jumped after Fed chair Jerome Powell indicated the central bank might consider a pause in rate hikes next year while it gauges the impact of its credit-tightening program.

The Fed has raised rates three times this year and is expected to boost rates for a fourth time at its Dec. 18-19 meeting of policy-makers. That steady pace of rate hikes has begun to worry some investors amid growing signs that some sectors of the economy are hurting, including U.S. home sales. At the same time, there has been growing evidence that the global economic growth is slowing.

"The market seems right now to be focused on increased risks for a 2020 recession," said Patrick Schaffer, global investment specialist, J.P. Morgan Private Bank. "It's a very hard market to buy when you see really strong signals that we are indeed late (in the economic) cycle."

Reaction to arrest of Chinese executive

Thursday's initial wave of selling in the market came about as traders reacted to the news that Canadian authorities arrested the chief financial officer of China's Huawei Technologies on Wednesday for possible extradition to the U.S. The Globe and Mail, citing law enforcement sources, said Meng is suspected of trying to evade U.S. trade curbs on Iran.

Meng is a prominent member of Chinese society as deputy chair of the board and the daughter of company founder Ren Zhengfei. China has demanded Meng's immediate release.

The arrest came less than a week after U.S. President Donald Trump met with Chinese President Xi Jinping at the G20 summit in Argentina.

Markets rallied on Monday on news that Trump and Xi agreed to a temporary, 90-day stand-down in their trade dispute. That optimism quickly faded as skepticism grew that Beijing will yield to U.S. demands anytime soon, leading to a steep sell-off in global markets on Tuesday.

On Thursday, China's government said it would promptly carry out the tariff ceasefire with Washington. It also expressed confidence that the two nations can reach a trade agreement. The remarks suggest Beijing wants to avoid disruptions from Meng's arrest.

Investors wary

Even so, investors remained skeptical.

"Trade tensions aren't going away," Schaffer said. "Contradictory statements from the administration have given some people a little bit of pause with respect to the optimism that people felt following the Argentina G20 conference."

The renewed jitters over the implications that Meng's arrest could have on U.S.-China trade negotiations weighed on overseas markets.

Benchmark U.S. crude dropped 2.6 per cent to settle at $51.49 US a barrel in New York. Brent crude, used to price international oils, slid 2.4 per cent to close at $60.06 per barrel.

The dollar weakened to 112.65 yen from 113.19 yen late Wednesday. The euro rose to $1.1373 from $1.1342.

Gold gained 0.1 per cent to $1,243.60 an ounce. Silver fell 0.5 per cent to $14.51 an ounce. Copper dropped 1.1 per cent to $2.74 a pound.

In other commodities trading, wholesale gasoline lost 0.8 per cent to $1.43 a gallon. Heating oil gave up 1.6 per cent to $1.86 a gallon. Natural gas slid 3.2 per cent to $4.33 per 1,000 cubic feet.