Stock markets fall 0.5% in minutes, leaving traders perplexed

LONDON (Reuters) - U.S. and European stock markets saw a sudden 0.5% drop in hefty volumes around 1130 GMT on Tuesday, leaving traders scratching their heads and one calling it a "micro flash-crash".

Nasdaq stock futures fell 0.5% in four minutes while the S&P 500 e-mini futures fell 0.4%. They later added more losses to trade 0.9% and 0.6% lower respectively.

Europe's benchmark STOXX 600 index also turned negative during the quick-fire selloff and was last trading 0.8% lower.

"Not a great deal of movement in other assets but equity futures hit an air pocket," said an equity sales trader based in London. "Looking at the price action and volume, a sense the machines took over for a second and resulted in a micro flash-crash."

The volatility appeared to boost demand for safe-haven bonds, with the 10-year U.S. Treasury yield dropping almost 2 basis points to 1.591% before creeping back above 1.6%.

Some traders initially blamed the sharp moves on a report that a Chinese military aircraft had entered Taiwan's air defence zone, but they later discounted that as a factor as similar occurrences have been quite common recently.

(Reporting by Thyagaraju Adinarayan in London, additional reporting by Ben Blanchard in Taipei; Editing by Dhara Ranasinghe and Catherine Evans)

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