(AP)
Updated: 2007-02-28 08:55

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 last year grew 10.7 percent — the highest rate since 1995 — and a central bank report at the beginning of the year estimated it would expand 9.8 this year.

On Monday, 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 on Jan. 15. The goverment, worried that excessive borrowing could trigger a debt crisis, also raised interest rates twice last year.

In comments to a business conference in Hong Kong on Monday, Greenspan said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.

In Europe, companies with exposure to Asian markets led the declines.

BHP Billiton, the world's largest mining company, declined 4.8 percent to 1066 pence. Rio Tinto Group, the third biggest, lost 4 percent to 2824 pence.

Standard Chartered PLC, a British bank that earns most of its money in Asia, slipped 2.1 percent to 1,477 pence, or $29.00, on the London Stock Exchange.

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