Feb. 27 (Bloomberg) -- Emerging-market stocks tumbled the most since June after a plunge in Chinese equities reduced investors' appetite for riskier assets.

The declines were sparked by China's plan to crack down on illegal investments, which sent Chinese equities on their steepest slide in a decade. Russian stocks today fell 3.3 percent from an all-time high. Turkey's stock index had its biggest decline since June. Brazil's Bovespa slid 6.6 percent, as an index of Latin American shares fell the most since the Sept. 11, 2001, terrorist attacks in the U.S.

``I wouldn't buy'' in emerging markets, said Marc Faber, a Hong Kong-based investor who manages about $300 million and who predicted the U.S. stock market crash in 1987. ``Something has changed in the financial market: It's the time to sell rallies rather than buy dips.''

Emerging market stocks had soared to records, partly on confidence that growth in China will fuel demand for exports such as copper, oil and steel. Before today, the Morgan Stanley Capital International's Emerging Markets Index climbed 20 percent in 12 months. The index's price to earnings ratio rose to 15.92, almost double the average for the past year.

The gauge erased its gain for the year today, falling 3.1 percent to 911.53 at 4:32 p.m. in New York, the biggest drop since June 13.

The Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, fell 250.18, or 9.2 percent, to 2457.49. Today's rout wiped out $107.8 billion from a stock market that doubled in the past year, as 249 of the index's 300 shares plunged by the 10 percent limit.

China Clamps Down

China's highest ruling body, the State Council, has approved a special task force to clamp down on illegal share offerings and other banned activities in the market, the government said. The group will provide advice on regulations and policy explanations of the securities market, according to a statement published Feb. 25 on the central government's Web site.

Stocks surged in China last year after a government plan to make more than $200 billion of state-owned stock tradable revived investor demand and paved the way for sales by some of the nation's biggest companies. Most overseas investors cannot invest in China's local stock markets because of restrictions imposed by the government. The economy, which in 2005 overtook the U.K. as the world's fourth biggest, averaged annual growth of 9.6 percent in the past five years.

``We don't know if it will be a prolonged trend,'' said Brazilian Central Bank President Henrique Meirelles at a hearing with senators in Brasilia today. ``We don't know if the day will end like this, or tomorrow, but this is a warning that we cannot base economic policy on momentary euphoria.''

Developer Falls

China Vanke Co., China's biggest property developer, lost 8 percent to 13.25 today. China United Telecommunications Corp., which controls the nation's second-largest mobile-phone operator, 9.9 percent to 4.89.

``China's plunge is just a temporary decline prompted by investors who are taking profit after the recent advance,'' said Michiya Tomita, who oversees about $264 million in Chinese equities for Mitsubishi UFJ Asset Management Co. in Tokyo. ``The demand for equities is still strong, so I'm expecting the market will recover.''

Shares in developed markets also slipped on speculation companies that do business with China will be hurt by a tightening of controls on investment in the world's fastest-growing major economy.

Exporters Retreat

``If there's concern about growth in China it definitely will hurt exporters,'' said Urban Larson, who helps manage $2 billion in emerging markets stocks at F&C Investments in Boston.

Europe's Dow Jones Stoxx 600 Index fell 3 percent. BHP Billiton, the world's largest mining company, fell 1.8 percent and Rio Tinto Group, the third biggest, fell 4.8 percent. Stoxx 600 mining shares reached a record high yesterday as investors bet demand from China and India for industrial metals would boost earnings.

The MSCI Latin American index fell 6.7 percent. In Brazil, Cia. Vale do Rio Doce, the world's biggest iron-ore miner, fell 7.9 percent. All 58 stocks in Brazil's Bovespa index declined in the biggest fall since Sept. 13, 2001.

Argentina's Merval index fell 6.7 percent. Mexico's index fell 5.8 percent, the most since April 14, 2000. Main indexes in Chile and Colombia fell more than 4.5 percent.

Stocks in developing nations have more than tripled since Asia's financial crisis in 1997-98 triggered a sell-off. The MSCI Emerging Markets lost more than half of its value from July 1997 through August 1998.

Asian Flu

``The Asian flu from 1997 isn't what we're seeing today,'' Eran Cohen, who helps manage $2.5 billion for Migdal Capital Markets Ltd. said by telephone from Tel Aviv. ``Emerging markets have come a long way in the past decade. Back in 1997, these were the production factories of the developed world. Today they are much stronger.''

In Russia, the ruble-denominated Micex lost 4.1 percent today. The dollar-based RTS Index fell for the first time in four days, dropping 3.5 percent.

OAO Gazprom, the world's biggest natural gas producer, slid 3 percent. OAO Lukoil, Russia's largest oil producer, declined 3 percent, and Sberbank, the country's biggest bank, dropped 2.7 percent.

South Africa's FTSE/JSE Africa All Share Index slumped 3.2 percent, led by mining companies.

`Looks Murky'

``Any indication that the Chinese economy will be deliberately slowed will hit commodity prices and emerging markets,'' said Graeme Korner, a fund manager at Standard Bank Group Ltd.'s private-banking unit in Johannesburg. ``The outlook for commodity prices suddenly looks murky and this will weigh on a lot of emerging markets that are commodity based.''

Turkey's ISE National 100 Index dropped 4.5 percent, the most since June 13. Turkiye Is Bankasi AS, the country's biggest-listed lender, and Turkiye Garanti Bankasi AS, the third-biggest bank, led the drop.

Poland's WIG20 Index slid 4.5 percent, the Czech PX Index declined 4.1 percent, while Hungary's BUX Index fell 2.4 percent.

``There is no direct connection between what's going on in China and Europe or eastern Europe,'' said Peter Bodis, who manages $1.3 billion at Pioneer Investments in Vienna and hasn't been adding to stock holdings lately. ``What we see now is a healthy correction after markets rose in the past months on an optimistic outlook for this year's profits.''

To contact the reporter on this story: Anne Pollak in London at apollak@bloomberg.net.

Last Updated: February 27, 2007 17:45 EST