By Steven Russolillo 

Chinese stocks logged their steepest declines in months on Thursday after China barred travel from the city at the epicenter of a worsening viral outbreak, as investors grappled with the potential economic fallout of the disease.

The Shanghai Composite Index sank 2.8% in its biggest single-day drop since May 2019. The Shenzhen Composite Index slumped 3.5%, while Hong Kong's Hang Seng Index fell 1.9%.

The Chinese government on Thursday locked down Wuhan, the city where the new coronavirus originated, a dramatic escalation in an attempt to contain the outbreak that has killed at least 17 people and infected more than 500 so far. Outbound flights and trains were halted and the city's public-transportation system was shut down. China's aviation authority said a total of 288 flights in and out of Wuhan had been canceled as of 11:30 a.m. local time.

Airlines listed in Hong Kong and Shanghai fell sharply, including Cathay Pacific Airways Ltd. which dropped 2.9%. Airport operators also dropped, including Guangzhou Baiyun International Airport Co., which slumped more than 8% on heavy trading volume.

The Wuhan lockdown comes shortly before the Lunar New Year holiday, one of the busiest travel periods for people in China and the region. Authorities feared that increased travel would enable the pneumonia-causing virus to spread further.

Sean Darby, global equity strategist at Jefferies, said airlines, airports and railway stocks would likely be hurt the most from China's decision to curb travel from Wuhan.

The caution comes as investors look to past viral outbreaks, including severe acute respiratory syndrome (SARS), to assess how bad the damage could be on the economy and markets this time around.

"The fallout of SARS in 2003 remains at the top of Asian investors' minds." said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.

Thursday's decline also marked the worst drop on record for Chinese stocks in the final trading day before the Lunar New Year break since the market opened in the early 1990s, according to data provider FactSet.

Chinese markets will be closed Friday and early next week for the Lunar New Year holiday. "It is thus quite understandable that some money would be taken off the table until the true extent of the coronavirus issue becomes obvious," Mr. Halley said.

Joanne Chiu contributed to this article.

Write to Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

January 23, 2020 03:34 ET (08:34 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.