ETFs tracking Japan, the world’s third-largest economy, slumped Thursday in U.S. trade after a late-session slide sent Japanese shares tumbling to their worst one-day performance in more than two years during Thursday’s Asian session.

Japan’s Nikkei 225 plunged 5.5% while the Topix Index slid 6.9% after HSBC’s flash reading of China’s Purchasing Managers’ Index for May fell to 49.6. HSBC’s April PMI reading was 50.4. Readings below 50 indicate contraction and the May flash reading is the first time since October that China has dipped below that mark.The new orders index fell to 49.5, the worst reading since last September. China’s official PMI data will be released next week.

That data point prompted a stunning reversal in Japanese stocks, which opened the session higher. Japanese equities are Asia’s best performer’s this year, which has benefited ETFs such as the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ). Japanese Prime Minister Shinzo Abe’s campaign to weaken the yen and drive inflation to 2% has helped make DXJ 2013’s top asset-gathering ETF.

In late 2012, the ETF did not even have $900 million in assets. It entered trading Thursday with almost $10.8 billion on the back of a year-to-date gain of 38.4%. [Yen Hedged ETFs Soar As Nikkei Tops 15,000]

The rival iShares MSCI Japan Index Fund (NYSEArca: EWJ) was up 21.4% year-to-date heading into Thursday, but suddenly DXJ and EWJ look vulnerable following the volatility in Thursday Asian session.

DXJ plunged 8.4% on volume that surpassed its daily average less than 25 minutes into Thursday’s session. EWJ tumbled nearly 8% on volume that is already nearly half the 40.8 million shares per day average seen over the trailing 90 days.

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