Asian stock markets slumped Tuesday as a mysterious pneumonia taking hold in China spooked investors, while sentiment also suffered a knock from a credit-ratings downgrade to major financial hub Hong Kong.

Most European and U.S. markets followed Asia lower after Hong Kong slumped by 2.8 percent by the close and Shanghai ended with a loss of 1.4 percent.

Moody's has lowered its credit rating on Hong Kong, which has likely fallen into recession owing to the unrest as well as the China-U.S. trade war.

AJ Bell investment director Russ Mould attributed the weakness in stock markets in Asia and beyond to "Reports the deadly virus has spread to neighboring countries, with all the potential economic disruption that could cause."

Analysts also cited a muted forecast from the International Monetary Fund, which cut the global growth estimate for 2020 to 3.3 percent, 0.1 percentage point lower than in a prior report released in October, noting an improvement in the U.S.-China trade picture but pointing to weakness in India.

The new coronavirus strain has caused alarm because of its connection to Severe Acute Respiratory Syndrome (SARS), which killed nearly 650 people across Chinese mainland and Hong Kong in 2002-2003.

Asian countries on Tuesday ramped up measures to block the spread of the new virus as the death toll in China rose to nine, while U.S. authorities confirmed the first case on American soil.

"The cost to the global economy can be quite staggering in negative GDP terms if this outbreak reaches epidemic proportions," said AxiCorp analyst Stephen Innes in a note.

Innes added that should "things turn critical it could provide a massive blow to the airline industry and a knockout punch to local tourism."

Tourism shares hit

Tourism-linked shares plunged in Hong Kong, with Cathay Pacific losing more than four percent and casino operator Wynn Macau down 4.8 percent.

But in London, shares in EasyJet jumped by 4.6 percent after the British no-frills airline said it expected to reduce losses in its first half after revenues grew following the collapse of tourism group Thomas Cook in late 2019.

U.S. travel companies such as American Airlines and Booking Holdings also were under pressure, as major Wall Street indices pulled back from Friday's records in the first session of the holiday-shortened week. U.S. markets were closed Monday for the Martin Luther King Junior holiday.

Boeing was the biggest loser in the Dow, dropping by 3.4 percent after it announced that it now does not expect the 737 MAX to return to the skies until mid-2020, later than some analysts expected.

The news halted trading in Boeing shares for a time, but the stock ended up from lows hit earlier in the day.

(With input from AFP)