Sept 02, 2015 (LBO) - Data from China suggesting a contraction in factory activity threw global markets into a selling frenzy Tuesday with the U.S. S&P 500 plunging 2.9 percent and the London FTSE falling 3.03 percent. This was after Shanghai closed 1.2 percent earlier in the day. Colombo stocks fell a smaller 0.11 percent on Tuesday. China's manufacturing sector shrank at its fastest pace in three years. The manufacturing purchasing managers' index (PMI) dropped to 49.7 from 50 in July, with a figure below 50 indicating a contraction. A slowdown in the world's second-largest economy has spooked markets with the possibility that companies selling in China will experience slower earnings growth. Netflix fell eight percent, partly on news of Apple moving into original programming, and Apple fell 4.47 percent. The head of the International Monetary Fund, Christine Lagarde, said global economic growth was likely to be weaker than their recent forecasts. Citibank expects China’s economy to grow by 6.3 percent in 2016, down from 6.7 percent seen previously. For 2017, growth is forecast to pick up to 6.5 percent, although this is below the 7.1 percent previously forecast by the bank. This week, Chinese leader Xi Jinping will welcome Russian President Vladimir Putin to Beijing to celebrate the anniversary of the end of World War II. Puting has said Russia-China relations have never been better, according to media reports. The two countries may sign a memorandum of understanding for a new pipeline to take gas from Russia’s Far East to China, but this is unlikely to cheer markets. The ruble has fallen sharply in recent months and trade between Russia and China has reduced 29 percent, pushing Russia out of the top 15 trade partners for China. Oil prices fell seven percent in the last session. Brent Crude was at 48.90 dollars per barrel, down 1.33 percent on Wednesday. On the positive side, the market tumble pushed the S&P 500's valuation down to 15.6 times expected earnings, compared to around 17 for much of 2015, according to Thomson Reuters StarMine data, making it a bit more attractive for buyers.