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Stocks fell sharply on Wall Street Tuesday as traders worried that the U.S. and China made less progress than originally thought on defusing their dispute over trade and the U.S. bond market sent unsettling signs about economic growth.

The Dow Jones Industrial Average closed down 799.36 points, or 3.1 per cent, to 25,027.07. The S&P 500 lost 90.30 points, or 3.24 per cent, to 2,700.07 and the Nasdaq Composite dropped 283.08 points, or 3.8 per cent, to 7,158.43.

Bond prices rose and yields dropped as investors turned to lower-risk assets. The yield on the benchmark 10-year Treasury note fell to its lowest level in three months. It was the Dow’s biggest decline since the market rout in October.

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The wave of selling erased the market’s gains from a day earlier, when stocks rallied after the U.S. and China agreed to a temporary truce in their trade dispute. Investors’ confidence in that truce faltered Tuesday, contributing to renewed fears that the disagreement between the two economic powerhouses could slow the global economy.

Technology companies, banks and industrial stocks accounted for much of the sell-off. Utilities stocks rose. Smaller-company stocks fell more than the rest of the market.

Big losses for Boeing and Caterpillar, major exporters which would stand to lose much if trade tensions persist, weighed on the Dow.

The bond market signalled its concerns as the gap between two-year and 10-year Treasuries reached its narrowest difference since 2007.

When yields for long-term bonds drop lower than yields for short-term bonds, it’s what economists call an “inverted yield curve.” It indicates that investors are forecasting a weaker economy and inflation in coming years. An inverted yield curve has also preceded each recession of the last 60 years, though sometimes by more than a year.

“You have the drop in bond yields and the implications on growth going forward,” said Willie Delwiche, investment strategist at Baird. “The bigger issue is you have this unwind from yesterday’s rally.”

Canada’s main stock index also fell on Tuesday, led by healthcare and energy shares, while market sentiment was hurt by fading hopes of a swift resolution to the U.S.-China trade dispute.

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The Toronto Stock Exchange’s S&P/TSX Composite Index was down 211.39 points, or 1.38 per cent, at 15,063.59, according to preliminary figures.

The healthcare sector fell 4.6 per cent, the most among the 11 major sectors.

Aphria Inc. was down nearly 20 per cent. The cannabis producer defended its Latin American operations from claims in a short-seller report on Monday that the company had overpaid for assets. Its stocks is now down 65 per cent for the year.

Canopy Growth and Aurora Cannabis dropped more than 5 per cent each.

Energy stocks were off 2.2 per cent even as oil prices headed higher ahead of an OPEC meeting on Thursday, where members are expected to agree to cut output in 2019. Benchmark U.S. crude rose 0.6 per cent to US$53.27 per barrel in New York. Brent crude, the international standard, added 0.9 per cent to US$62.22 per barrel in London. Encana fell 3.7 per cent.

Industrials fell 2.8 per cent as Bombardier fell 6.2 per cent and Finning International dropped 5.7 per cent.

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The financials sector edged down 1.6 per cent. Bank of Montreal fell 3.8 per cent even after Canada’s fourth-biggest lender reported fourth-quarter earnings that beat forecasts and raised its dividend, ending a mixed earnings season for Canada’s biggest banks. Toronto-Dominion Bank lost 1.7 per cent, while Bank of Nova Scotia dipped 1.2 per cent.

The sell-off came ahead of Wednesday’s closure of U.S. stock and bond markets in observance of a national day of mourning for former President George H.W. Bush.

The sharp turn in the markets followed a strong rally on Monday fueled by optimism over the news that U.S. President Donald Trump and his Chinese counterpart Xi Jinping had agreed at the G-20 summit over the weekend to a temporary, 90-day stand-down in the two nations’ escalating trade dispute.

But the market’s optimism faded Tuesday amid published reports questioning the scant details out of the Trump-Xi talks and growing skepticism that Beijing will yield to U.S. demands anytime soon.

“The actual amount of concrete progress made at this meeting appears to have been quite limited,” Alec Phillips and other economists at Goldman Sachs wrote in a research note.

Delwiche echoed those doubts.

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“The sense is that there’s less and less agreement between the two sides about what actually took place,” Delwiche said. “There was a rally in the expectation that something had happened, the problem is that something turned out to be nothing.”

The trade dispute has rattled markets in recent months as signs emerged that it has begun affecting corporate profits. That’s stoked traders’ fears that if it drags much longer it could further weigh on global economic growth.

The jitters helped drive demand for government bonds Tuesday, pushing prices higher. The yield on the 10-year Treasury note fell to 2.91 per cent from 2.99 per cent late Monday, a large move. The slide in bond yields, which affect interest rates on mortgages and other consumer loans, weighed on bank stocks. Citigroup fell 5.4 per cent.

Chipmakers were among the biggest decliners in a technology sector slide. Advanced Micro Devices dropped 10.9 per cent while Micron Technology lost 7.9 per cent.

Homebuilders fell after luxury homebuilder Toll Brothers issued a cautious assessment of the housing market. Toll’s shares fell 1.6 per cent. Hovnanian Enterprises led most builders lower, giving up 9.4 per cent.

Apple lost 4.4 per cent after the consumer electronics giant was downgraded by HSBC analysts, citing the possibility that iPhone volume and value growth may moderate due to a saturated mobile phone market.

Discount retail chain Dollar General slid 6.8 per cent after the company reported weak quarterly results.

AutoZone climbed 6.7 per cent after the auto parts retailer delivered third-quarter earnings that exceeded analysts’ forecasts.

Reuters, Associated Press

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