Updated:

Canadian police have arrested Huawei Technologies Co. Ltd. Chief Financial Officer Wanzhou Meng on a U.S. warrant concerning allegations the Chinese company broke American law in trading with Iran.

The news rocked the stock market, with the Dow Jones Industrial Average falling about 385 points or 1.5 percent in midday trading Thursday. That was a bit of recovery from a plunge of more than 660 points earlier today. Update: By the day’s end, the Down fell only 79 points, or 0.3 percent, and the Nasdaq composite index actually rose almost 30 points, up 0.4 percent.

Investors fear that the arrest could worsen trade tensions with China. On Tuesday, the previous trading day after a hiatus Wednesday to honor the death of former President George H.W. Bush, the Dow fell nearly 700 points, also chiefly on China trade concerns.

Huawei, which surpassed Apple Inc. to become the world’s second-largest smartphone provider in July, was first targeted by the U.S. Department of Justice in April over its alleged dealings with Iran.

The South China Morning Post reported early Thursday that Meng (pictured), 41, is tipped by some mainland China media as a leading contender to succeed her father, Huawei founder Ren Zhengfei, to take the helm of the telecom giant.

The Chinese government is not happy with the news, saying that the arrest is a breach of human rights obligations.

Huawei confirmed the news, saying in a statement that it has been provided very little information regarding the charges and is not aware of any wrongdoing by Meng. It added that it “complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, U.S. and EU.”

Huawei has long been targeted by U.S. lawmakers over allegations that it is close to the Chinese government and its devices could be used for espionage.

Legislation first proposed in January and subsequently passed saw Huawei banned from seeking U.S. government contracts. The Trump administration urged its allies not to use anything made by the company last month.

Some U.S. allies have followed the advice, notably Australia, which banned both Huawei and rival ZTE Corp. from providing equipment for a 5G rollout in August.

The arrest may spark a response from China. “Huawei is one of the Chinese government’s pet companies,” James Lewis, director of technology policy at the CSIS think tank, told Axios. “They will retaliate and China will take hostages. If I was an American tech executive, I wouldn’t travel to China this week.”

With reporting from Robert Hof

Photo: Janitors