SEPTEMBER STOCKS START SOUR DOW -468

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BY

U.S. stocks plummeted Tuesday as continued signs of weakness in China and concerns about the Federal Reserve weighed heavily on investor sentiment. ( Tweet This )

The major averages ended in correction territory, down nearly 3 percent in their third-largest daily decline for 2015. Stocks failed an attempt to cut losses in choppy trade prior to the close.

In their worst start to September in 13 years, the Dow Jones industrial average and S&P 500 had their worst first trading day of a month since March 2009. The Nasdaq had its worst first trading day of a month since October 2011.

[Programming note: CNBC will air a special at 7 p.m., ET on the markets]

The Dow closed about 470 points lower, off session after falling as much as 548 points. The Nasdaq composite wiped out gains for 2015, joining the other averages in the red for the year so far.

“Today is just a continuation of last night’s sentiment, plain and simple. Concerns continue to erupt about China’s economy and the growth (as well as the) decline in energy and WTI today,” said Ryan Larson, head of equity trading at RBC Global Asset Management (U.S.).

Crude oil settled down 7.7 percent, down $3.79 percent, at $45.41 a barrel, giving back much of Monday’s 8.8 percent surge.

Traders also continued to digest policymaker comments and U.S. data that could impact the timing of a rate hike.

“I think that is clearly the center of the weakness but I don’t know why people expect China to get any better,” said David Kelly, chief global strategist at J.P. Morgan Funds. “China has its problems but it’s not a big driver for the U.S. or earnings of U.S. corporations.”

“Nothing happened yesterday to affect the people’s perceptions of the Fed,” he said.

Other analysts attributed the volatility to a hawkish read on Fed Vice Chair Stanley Fischer’s comments over the weekend ahead of Friday’s key jobs report and the FOMC meeting later this month.

“The markets were counting on him to be more dovish and he wasn’t. That in conjunction with the weak PMI (in China)” pressured stocks,” said Krishna Memani, chief investment officer at Oppenheimer Funds.

Earlier, stocks extended losses in afternoon trade after Boston Fed President Eric Rosengren said in a speech that the central bank’s jobs target to raise rates has largely been met, but that its inflation target is not as clear cut. Rosengren is a nonvoting member.

“Regardless of whether you’re a voting member or not, if you [say] September’s on the table, that’s going to, in part, drive us lower,” said Art Hogan, chief market strategist at Wunderlich Securities.

Two sets of key Chinese data disappointed traders on Tuesday. The official manufacturing purchasing managers’ index (PMI) edged down to 49.7 in August from 50 in July, while the final Caixin/Markit manufacturing PMI came in at 47.3 in August, the lowest reading since March 2009.

Read MoreThese battered stocks are China-proof

Even more worrying, China’s services sector, which has been one of the lone bright spots in the sputtering economy, also showed signs of cooling, a similar business survey said.

“Services PMI was a little weaker than expected,” said Ben Pace, chief investment officer at HPM Partners. He noted that many analysts were expecting the services sector to offset weakness in the manufacturing sector.

“I think it’s continuation of the volatility we’ve been seeing. Our thought is this kind of volatility (is present) particularly because we’re in the summertime. We’re also in a news vacuum. No (major) earnings out there,” Pace said.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, has held stubbornly high near 30 since last Monday’s plunge in stocks. The index approached 33 in the close.

“Granted, volatility tends to be more negative than positive in markets in general,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

After the Dow futures fell more than 400 points ahead of the opening bell, the New York Stock Exchange invoked Rule 48 for the fourth time in two weeks.

Putin says dump dollar

Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

The bill would also help to facilitate trade in the region and help to achieve macro-economic stability.

Within the framework of the Eurasian Economic Union (EEU) the countries have also discussed the possibility of switching to national currencies. According to the agreement between Russia, Belarus, Armenia and Kazakhstan, an obligatory transition to settlements in the national currencies (Russian ruble, Belarusian ruble, dram and tenge respectively) must occur in 2025-2030.

Today, some 50 percent of turnover in the EEU is in dollars and euro, which increases the dependence of the union on countries issuing those currencies.

Outside the CIS and EEU, Russia and China have been trying to curtail the dollar’s dominance as well.

READ MORE: China approves usage of ruble instead of US dollar for border city

In August, China’s central bank put the Russian ruble into circulation in Suifenhe City, Heilongjiang Province, launching a pilot two-currency (ruble and yuan) program. The ruble was introduced in place of the US dollar.

READ MORE: Time for Russia & Vietnam to think of switching to local currencies – Medvedev

In 2014, the Russian Central Bank and the People’s Bank of China signed a three-year currency swap agreement, worth 150 billion yuan (around $23.5 billion), thus boosting financial cooperation between the two countries.

PENTAGON MUM ON WHETHER TOP-SECRETS COMPROMISED BY CLINTON BATHROOM SERVER…

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Top-secret data found in emails produced by reconnaissance assets

BY BILL GERTZ

The Pentagon on Tuesday sidestepped questions about whether top-secret intelligence, including secrets derived from reconnaissance satellites and aircraft, was compromised after being placed on unsecure emails found on Hillary Clinton’s private server.

Pentagon Press Secretary Peter Cook, in an inaugural briefing for reporters, would not answer questions about the secret intelligence found by an inspector general in a sampling of emails once stored on Clinton’s unsecured server. The email system was used by the former secretary of state from 2009 to 2013.

So far, some 305 emails containing classified data have been found among some 60,000 emails once kept on the private server.

“I think this an issue best left to the State Department,” Cook said. “They’ve had to address this and also Secretary Clinton. It’s not something that I think makes sense for me to get into from right here at this podium.”

Cook also would not say if the Pentagon is conducting a damage assessment or investigating whether its secrets were compromised.

U.S. Intelligence Community Inspector General Charles McCullough disclosed in a notification to Congress Aug. 11 that samples of Clinton’s emails had revealed improperly stored intelligence information classified “Top Secret//SI//TK//Noforn” on the Clinton server.

Clinton initially denied placing any classified information on the email server, and later said she did not knowingly use data that was “marked” classified. Last week she stated, “I did not send classified material, and I did not receive any material that was marked or designated classified.”

An email sent to the Clinton presidential campaign seeking comment was not returned.

The Pentagon and its associated intelligence agencies have been stung by two major security failures in recent years. The first involved the compromise of tens of thousands of classified documents stolen by Army Pvt. Bradley Manning and supplied to the anti-secrecy website Wikileaks. The second was the theft of an estimate 1.7 million classified NSA documents that were supplied to a number of news outlets, including the Washington Post.

SI is code for special intelligence and is used as a marker for documents that contain communications intelligence, usually produced by the National Security Agency. The TK designator stands for Talent Keyhole and is used as a marking on intelligence derived from reconnaissance systems. Both designators are among the highest security classification levels.

Storing such information on an unclassified email system is illegal under federal laws governing the handling of secret information.

The Pentagon, through the National Security Agency (NSA) and National Geospatial Intelligence Agency, or NGA, is the largest producer of classified information for the U.S. government. The NSA conducts cyber spying and electronic eavesdropping for intelligence labeled SI. The NGA controls and disseminates satellite intelligence in the TK category.

Talent is the code word for intelligence obtained from manned aircraft reconnaissance flights. Keyhole is used to label intelligence obtained from reconnaissance satellites.

Both code words are used to mark documents containing communications and photographic intelligence.

Despite the Wikileaks and Snowden disclosures, the Pentagon has made little effort to address what it calls the “insider threat” to its secrets.

Congress’ Government Accountability Office, in a report issued in June, said the Pentagon has not done enough to deal with the problem.

In the aftermath of the Wikileaks disclosures, Congress in 2011 directed the Pentagon to set up an insider threat program. The White House also produced a presidential memorandum creating a National Insider Threat Task Force that sought to designate senior officials who are in charge of addressing insider leaks.

“The recent disclosures of classified information by insiders have damaged national security, potentially placed the lives of military service members at risk, and highlighted the importance of preventing or mitigating future threats to DOD’s classified information and systems,” the GAO said.

While some improvements have been made to DOD information security, “DOD components have not taken action to incorporate other key elements into their insider-threat programs because DOD has not issued guidance that identifies actions beyond the minimum standards that components should take to enhance their insider-threat programs.”

Clinton Says Classified Material WAS ON SERVER…

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Democrat’s campaign says material was made secret retroactively

WASHINGTON— Hillary Clinton’s campaign said Wednesday that emails on the private server she used when she was secretary of state contained material that is now classified, the clearest explanation thus far of an issue that has roiled her bid for the presidency.

At the same time, the campaign sought to play down the disclosure by saying the material had been retroactively classified out of an abundance of caution by U.S. intelligence agencies.

“She was at worst a passive recipient of unwitting information that subsequently became deemed as classified,” said Brian Fallon, a spokesman for Mrs. Clinton’s campaign.

Mrs. Clinton has been criticized for using a private email server when she was in office. Since 2013, the server was maintained by a small Denver company and stored at a secure data center in New Jersey until it was turned over to the FBI last week. Her use of the server has prompted an FBI counterintelligence investigation.

Republicans portrayed the Clinton campaign’s disclosure as a tacit admission that her previous statements about the partisan direction of the investigation were in error. Earlier this year, Mrs. Clinton said “there is no classified material,” before shifting her emphasis to say she didn’t receive any materials marked as classified.

“Secretary Clinton has repeatedly made false claims about her email records, and her charge that these investigations are partisan have been widely ridiculed. If she and her campaign are having a change of heart, she should personally admit the truth and retract her false statements,” saidKevin Smith, a spokesman for House Speaker John Boehner.

The campaign’s latest statements add to the emerging picture of how Mrs. Clinton handled email stored on the private server between 2009 and 2013.

The firm hired to handle the server in June 2013 after Mrs. Clinton left office was a 40-person company in Denver more accustomed to handling tech chores such as network monitoring and cybersecurity for banks, law firms and construction companies. The company’s Facebook page features photos of its sales team dressed as nurses and patients inspired by the 1975 film “One Flew Over the Cuckoo’s Nest.”

Platte River Networks didn’t know about any classified material on the server, a spokesman, Andy Boian, said Wednesday.

Mr. Boian said the Clinton server was picked up at the Clintons’ home in New York and moved to a “secure data center in New Jersey,” where it operated until last week. He said the computer was operational when Platte River took possession of it. “It was an email server,” he said, “That’s what they used it for.”

Pointing to two emails that helped spark the FBI probe, the Clinton campaign said State Department officials considered the material unclassified at the time it was sent. The controversy, said Mr. Fallon, amounts to a dispute between different agencies within the Obama administration about what constitutes classified material and what should be released publicly.

CLASSIFIED EMAILS

Here are two emails sent to Hillary Clinton that helped spark the FBI probe, as reported by Fox News.

“When it comes to classified information, the standards are not at all black and white,” said Mr. Fallon on a conference call with reporters.

The two emails in question were written by lower-ranking State Department officials and forwarded to Mrs. Clinton by top aides Jake Sullivan and Huma Abedin, who both now work for her Democratic presidential campaign.

An inspector general for the intelligence community said earlier this year he found four emails containing material that were classified at the time they were written.

Fox News on Wednesday identified two of them as being emails that already have been released publicly as part of an investigation into the death of the U.S. ambassador in Benghazi, Libya. Both the State Department and the Clinton campaign say neither was classified at the time they were sent to Mrs. Clinton.

Mrs. Clinton has long said her use of a personal email server for government business was legal. She also has said she didn’t send anything deemed classified. State Department rules discouraged private email use for unclassified email but didn’t forbid it.

Critics say her server may have been vulnerable to hacking and that her arrangement gave her and her attorneys the power to determine what material was turned over to the government and what was destroyed. She has said the use of a private server was unwise in hindsight and that she should have used government email. “I take responsibility,” she said Tuesday at a news conference in Las Vegas. “In retrospect, this didn’t turn out to be convenient at all, and I regret that this has become such a cause célèbre.”

It still isn’t clear why Mrs. Clinton chose Platte River to manage the server. Mr. Boian said Platte River had submitted a proposal for the work and won the contract.

Before service providers are authorized to handle classified material, they must undergo a “long formal procedure” to ensure that they have the security measures in place to prevent unauthorized access to the data, said John Pescatore, a former National Security Agency employee who is now a director at the SANS Institute, a computer-security training organization.

Former employees described Platte River as a tightknit company, but an unlikely home for the correspondence of a former secretary of state. The company was formed in 2002 by Treve Suazo, Brent Allshouse and Tom Welch, who had met at another Denver technology firm. Mr. Welch is no longer with the firm.

“Platte River Networks is not under investigation,” Mr. Boian said.

Platte River specializes in handling information-technology services for Denver-area companies. Until they were removed from the company’s website, the company listed a local construction company, bank and law firm as reference customers.

Platte River handled computer services for Denver Transit Partners LLC, the organization building a 35-mile commuter-rail line in Denver, according to Denver Transit Partners spokeswoman Laura Rinker.

Until this week, the Web page listing the company’s top executives featured photos of their vehicles instead of the standard corporate headshot. Mr. Suazo, the CEO, sported a 2014 BMW 535; Mr. Allshouse, the chief financial officer, the Sierra 2500HD pickup.

Now that they have possession of the server, federal investigators may be in a position to examine even contents that were deleted. Even deleted messages can be recovered from the server’s hard drive, using forensic technology, unless someone took deliberate steps to overwrite free space on the computer’s hard drive.

Mrs. Clinton’s personal attorney said in a letter to Congress that as of March no work emails were left on the server.

In addition to the FBI probe, Mrs. Clinton’s use of a personal email server has prompted a number of lawsuits.

On Thursday, a federal judge will hear from lawyers in one such case, filed by conservative watchdog group Judicial Watch, which contends the U.S. government hasn’t made a good-faith effort to find correspondence involving Mrs. Clinton and her senior staff.

As part of that suit, the State Department told the court Wednesday it couldn’t locate BlackBerry smartphones or other electronic devices for Mrs. Clinton’s former aides. The devices were likely “destroyed or excessed” in accordance with Department procedures, said State Executive Secretary Joseph Macmanus in a court declaration.