Hong Kong stocks tumbled Tuesday as protests that have jolted the city for more than two months fuel political and economic uncertainty, with China's growing frustration leading to worries it will take a tougher line with the standoff.

The increasingly violent unrest in the key financial hub comes as world markets are hit by fears about the global economy and dimming hopes for trade talks between China and the United States.

In the latest development, Hong Kong's busy international airport was forced to cancel hundreds of flights in and out on Monday as thousands of demonstrators descended, stranding thousands of passengers.

Hundreds of flights were still listed as cancelled at the airport, one of the world's busiest, and protesters called for a new gathering there later in the day.

The abrupt closure came 10 weeks into a crisis that has seen millions of people take to Hong Kong's streets in the biggest challenge to Chinese rule of the semi-autonomous city since its 1997 handover from Britain.

Hong Kong's Beijing-backed leader Carrie Lam has ruled out making concessions and on Tuesday she warned that violence would push the city down a "path of no return".

That came a day after China described violent protests as "terrorism", which analysts said raised concerns among investors.

Stephen Innes, managing partner at VM Markets, said: "Dropping the 'T' word is particularly disturbing as it does suggest a more aggressive mainland response, which triggered a wave of risk aversion across global markets."

The Hang Seng Index was down 1.86 percent, or 479.07 points, at 25,345.65 by the break.

'Situation will get worse'

Losses were across the board, with carrier Cathay Pacific shedding more than four percent as it was hit by the cancellation of several flights.

It had already lost almost five percent on Monday after Beijing banned airline staff supporting Hong Kong protesters from flights going through the mainland. Cathay parent Swire Pacific was down 1.17 percent Tuesday, a day after losing more than six percent.

MTR Corp, which runs the city's subway network that has seen a number of high-profile violent clashes between protesters and police, was down 3.14 percent.

Among other firms casino operators were hurt by worries about visitor numbers with Galaxy Entertainment and Sands China both more than three percent off.

There were also big losses for property giants. Sino Land shed almost two percent, Henderson Land fell 1.6 percent and New World Development was off more than one percent.

Market heavyweight and tech giant Tencent retreated 1.29 percent while insurer AIA slipped 2.78 percent.

The long-running demonstrations have had an impact on the city's economy, with the crucial shopping sector being hammered — data showed retail sales sank a much more than expected 6.7 percent on-year in June.

And the economy expanded just 0.6 percent in the second quarter, well short of forecasts.

And there were warnings for more trouble ahead for the Hang Seng.

"It looks like the situation will get worse," Airy Lau, investment director at Fair Capital Management. "Together with the higher global recession risk from US-China friction, the Hang Seng Index is likely to have 5-10 percent more downside."