Taiwan's stock market index plunged today by more than 500 points, or 6.4 percent, in response to rumors of a possible Chinese military response to President Lee Teng-hui's shift in policy toward the mainland. It was the biggest one-day decline in nine years.

Taiwan's stock market has dropped more than 13 percent since Monday, mostly on fears that China might launch new missile tests or respond militarily in some other way. Apparently seeking to calm investor fears, Finance Minister Paul Chiu called Hong Kong newspaper reports that China might be preparing to seize Taiwan-controlled islands in the Taiwan Strait "unfounded rumors." In the same vein, Taiwan's Defense Ministry reported "no signs of abnormal troop concentration" by the People's Liberation Army on the Chinese side of the strait.

Stocks in China have also been hammered during the standoff. In Shanghai, the shares foreigners are allowed to buy, known as B shares, fell 5.5 percent today, and 20 percent over the week.

China's government, meanwhile, issued another blistering attack on Lee, vilifying him as a "sinner in history" who hopes to "wreck the peaceful reunification of the motherland." But the commentary, released by the official New China News Agency, sought to make a distinction between Lee and the rest of Taiwan's 21 million people, hinting that talks with a senior Chinese envoy scheduled for this fall in Taipei may still be held.

Lee said last weekend that ties between China and Taiwan must be treated as "state-to-state" relations. On Monday, his government dropped its "one China" policy, which had acknowledged that the island of Taiwan and mainland China are one national entity, in a nod toward Beijing's insistence that Taiwan is a breakaway province. In response, China warned that such separatist moves to "split the motherland" could lead to disaster.

The war of words across the Taiwan Strait is the most serious crisis since 1996, when China launched test missiles near Taiwan in an unsuccessful effort to scare Lee's supporters in the island's first democratic election.

In a sign that the issue might enter the political arena on the self-ruled island democracy, James Soong, a powerhouse in the ruling Nationalist Party, announced today he is running for president as an independent and blasted Lee, saying: "Taiwan needs a courageous but not reckless leader."

Even some people who had been close advisers to the Nationalist Party oppose Lee's policy. Hungdah Chiu, a professor at the University of Maryland Law School, is a member of Taiwan's National Reunification Council, tasked with setting the direction of Taiwan's policy toward China. He called Lee's decision "unwise."

"The problem is that you need the recognition of other major powers and the U.S. apparently disapproves of the idea," he said. "The last time the People's Republic of China held exercises across the Strait, the U.S. sent aircraft carriers. This time, if it happens, I don't think the Americans will come."