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Stocks took their sharpest downturn in two years in a global sell-off on Monday as reports that the coronavirus is spreading quickly beyond China rattled investors and raised new concerns about the global economy.

Major U.S. and European stock benchmarks sank more than 3 per cent, and investors rushed for the safety of bonds and gold. Strength in gold prices, which hit a seven-year high, helped Canada’s main stock index limit its loss to about 1.6 per cent.

The coronavirus has for weeks stifled business activity and exports in China as citizens followed orders to stay at home in a bid to arrest the spread. Now, concerns are growing that other countries will feel the economic effects of extended quarantine efforts.

“At the beginning [of the coronavirus outbreak], markets were shrugging it off because it was regionalized mostly in Asia,” said Jennifer Lee, senior economist at BMO Nesbitt Burns.

But “this is becoming a lot more prevalent than [investors] had considered, and that’s probably why we’re seeing the big sell-off in stocks and the big rally in bonds,” Ms. Lee said.

On Monday, the United States had more than 50 reported cases, according to the Centers for Disease Control and Prevention. The number in Italy jumped to more than 200 from 152 on Sunday, as authorities there locked down some 50,000 people. And in South Korea, a major world economy and exporter, the numbers rose to more than 830, and seven deaths.

The S&P/TSX Composite Index fell nearly 280.79 points to 17,562.74. In the United States, the S&P 500 fell 111.86 points, or 3.35 per cent, to 3,225.89 – its biggest point decline in about two years. The Dow Jones Industrial Average fell 1,031.61 points, or 3.56 per cent, just days after hitting a record high on Feb. 12, and erased its gains for the year.

Some of the hardest-hit Canadian names during Monday’s sell-off were companies with exposure to the global economy. Air Canada fell 5 per cent. Magna International Inc. fell 3.2 per cent. And Manulife Financial Corp., an insurance company that does significant business in Asia, fell 7.3 per cent. Energy stocks fell about 4 per cent.

Previously high-flying growth stocks were also caught: Apple Inc., Inc., Tesla Inc. and Shopify Inc. all fell hard, suggesting investors were particularly uncomfortable holding pricey stocks.

In Europe, Germany’s DAX index fell 4 per cent, its worst since 2016, while Britain’s FTSE 100 fell 3.3 per cent.

The increase in cases of coronavirus, or COVID-19, outside China drew a reaction from Group of 20 finance ministers as they consider the economic impact of closed factories, limited travel and cancelled conferences.

“We will enhance global risk monitoring, including of the recent outbreak of COVID-19. We stand ready to take further action to address these risks,” they said in a statement after gathering in Saudi Arabia on the weekend.

The turbulence extended well beyond stocks. Among commodities, West Texas intermediate crude oil, a U.S. benchmark, fell 3.3 per cent to US$51.61 a barrel, reflecting concerns that a slower global economy will consume less energy.

The Canadian dollar also slumped as investors rushed toward the U.S. dollar, which is a typical haven in uncertainty. The loonie fell to 75.25 against the U.S. dollar, down more than a third of a cent. Gold rose US$11 to US$1,660 an ounce, extending a recent rally.

Bonds were also popular, sending yields lower. The yield on the 10-year U.S. Treasury bond fell to 1.379 per cent, down 9.6 basis points (a percentage point has 100 basis points), which is close to a record low.

The bond market is flashing warning signs of its own. Low yields imply economic activity is declining. Financial markets now expect there is a 77-per-cent chance the U.S. Federal Reserve will cut its key interest rate by June, up from 46 per cent a week ago, according to CME Group Inc.

“I think the bond market is way ahead of the economists, way ahead of the stock market and way ahead of the World Health Organization – in the sense that it began to price in the risk of a pandemic several weeks ago,” David Rosenberg, chief economist and strategist at Rosenberg Research and Associates, said in an interview.

As well, three-month U.S. Treasury notes are yielding more than 10-year bonds – a situation known as an inverted yield curve, which some observers see as an indication of a possible recession in the United States.

“The spread of the virus outside of China … challenges the assumption that the outbreak will blow over with only limited damage to the global economy,” Jonas Goltermann, a senior economist at Capital Economics, said in a note.

He added: “If travel restrictions and supply-chain disruptions spread, the impact on global growth could be more widespread and longer lasting.”

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