Stocks dive 2pc as Chinese manufacturing activity slows THE S&P/ASX200 has closed down 2 per cent at 5062.4, as slower Chinese manufacturing activity in May combined with signs that the US Federal Reserve could start rolling back its bond-buying program to send the local sharemarket to its biggest fall in two months. At the close today, the benchmark S&P/ASX200 index was down 103 points, or 1.99 per cent, at 5062.4 points, while the broader All Ordinaries index was 101.3 points, or 1.97 per cent, weaker at 5040.8. On the ASX 24, the June share price index futures contract was 99 points lower at 5072 with 42,457 contracts traded. The Aussie was changing hands at US96.46c, having traded as low as US96.26c. The currency has fallen by more than 7 per cent against the US dollar since the start of the month. Asian markets also fell sharply, with Tokyo stocks tumbling to their sharpest loss in more than two years. The Nikkei Stock Average lost 1143.28 points, or 7.3 per cent, to 14,483.98, following the prior session's 1.6 per cent rise. On a percentage point basis the fall was the worst since the volatility-punctuated aftermath of the March 2011 earthquake and tsunami that devastated Japan's northeast region. The Nikkei tumbled 10.55 per cent on March 15. Participation levels were the heaviest in the history of the Tokyo Stock Exchange, topping 7.655 billion shares. The value of all trades was also very high, totalling 5.837 trillion yen. A combination of factors contributed to the selloff, said market players. Fresh JGB 10-year yields hitting 1 per cent was a clear negative, while weaker preliminary HSBC China Manufacturing PMI data appearing midday comprised a second sell cue. HSBC's preliminary manufacturing purchasing managers index fell to 49.6 in May, a seven-month low, compared to the final reading of 50.4 in April. A reading below 50 indicates a contraction in manufacturing activity. "The negative Chinese indicator triggered today's selling," said Hirokazu Fujikiki, strategist with Okasan Securities. It was no wonder if sizable selling could emerge as Japanese shares rose quite fast recently. Hong Kong's Hang Seng Index fell 1.6 per cent, though the Shanghai Composite Index in mainland China remained resilient, gaining 0.1 per cent. South Korea's Kospi Composite was 0.7 per cent lower. The disappointing news from China added to the broad weakness earlier in the session after Federal Reserve chairman Ben Bernanke told lawmakers that the Fed could start reducing its $US85 billion-a-month bond-buying program at one of its "next few meetings." In addition, minutes from the central bank's last policy meeting showed that some officials were prepared to start pulling back the program as early as its June meeting. Although the group as a whole was not in complete agreement, the minutes further raised expectations that there could be a change in monetary policy. The yield on the 10-year Japanese government bond earlier climbed to 1 per cent, its highest level in more than a year tracking the decline in U.S. Treasurys on the news from the Fed. The effect of the Fed developments on stocks was broadly negative. Although it initially helped the Nikkei climb higher, as the yen weakened early in the session, the dollar weakened after the China data came out. Additional reporting: AAP, AFP