The massive fall in stocks was preceded by a major scandal involving the arrest of Huawei Technologies' chief financial officer, Wanzhou Meng in Vancouver at the request of the USA government, threatening to undermine the recently reached understanding between Beijing and Washington on their ongoing trade war.

Canada's ministry of justice confirmed the date and place of Ms Meng's arrest and added: "She is sought for extradition by the United States, and a bail hearing has been set for Friday".

The statement said that Meng has been "temporarily detained" when she was "transferring flights in Canada" and that Meng faces "unspecified charges in the Eastern District of NY".

Huawei Chief Financial Officer Meng Wanzhou was arrested before catching a connecting flight through Vancouver International on Saturday.

Huawei said it had little information about the charges and was "not aware of any wrongdoing by Ms Meng".

Although Meng and Huawei are not well-known in the USA, the executive and her company are extremely high profile in China.

Chinese foreign ministry spokesman Geng Shuang on Thursday called Meng's arrest a violation of human rights and demanded the "immediate release" of the 46-year-old executive, who also goes by the name Sabrina.

The U.S. Justice Department could not immediately be reached for comment. Meanwhile unconfirmed reports surfaced in April that the USA was investigating Huawei for possibly violating Iran export bans, a scenario that got fellow Chinese firm ZTE into significant trouble earlier this year. "Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU", Huawei wrote in the statement.

Canadian Prime Minister Justin Trudeau says his government had no involvement in the arrest of a top executive from Chinese telecoms giant Huawei.

The "message is clear - the United States is closing the borders to many Chinese technology companies", said Neil Campling, co-head Global Thematic Group at Mirabaud Securities.

He points out the arrest comes at a trying time for U.S.

ANALYST'S TAKE: "We are closely watching the developments in Asia after reports that Canada has arrested the Huawei CFO facing USA extradition for allegedly violating Iran sanctions".

HUAWEI: The news of Huawei CFO Meng Wanzhou's arrest sent shares sharply lower.

David Mulroney, a former Canadian ambassador to China, said US and Canadian business executives could face reprisals in China.

Huawei overtook Apple earlier this year to move into the No. 2 spot, according to Business Insider.

American law enforcement are seeking Meng's extradition to the United States, and a bail hearing is set for Saturday Australian time.

Both Huawei and ZTE Corp. have faced trouble with the USA and other governments over dealings with Iran and fears the Chinese companies' equipment might be used for spying. The White House said on Thursday that U.S. President Donald Trump did not know about the extradition request before his dinner with Chinese President Xi Jingping in Argentina at the recent G20 summit.

"Public opinion in China will likely become more negative in respect to the trade war, and potentially against U.S. companies", Deutsche Bank analyst Zhiwei Zhang said on Thursday.

The gloves are off. Things have taken a dramatic turn for the worse.

In January 2013, Reuters reported that a Hong Kong-based firm that attempted to sell embargoed Hewlett-Packard computer equipment to Iran's largest mobile-phone operator had much closer ties to China's Huawei Technologies than was previously known. All countries have agreed not to use Huawei while rolling out 5G networks, fearing that the company - founded by a former People's Liberation Army officer - would allow Chinese intelligence operatives to spy on other nations.

Stephen Innes, head of Asia-Pacific trading at investment firm Oanda, linked the losses directly to Meng's arrest.

U.S. Sen. Ben Sasse, a member of the Senate Armed Services and Banking committees, said China is working to undermine U.S. national security interests. He added: "Sometimes Chinese aggression is explicitly state-sponsored and sometimes it's laundered through many of Beijing's so-called "private" sector entities".

The charges against Meng - the daughter of the telecoms company's founder - remain unknown, but could relate to a possible violation of sanctions against Iran.