World stocks fell Tuesday in markets dominated by concerns the U.S. economy is sliding back into recession, prompting further flows into safe-haven assets.
The yen - favored for carry trades at times of economic stress - hovered back near 15-year high against the dollar after investors brushed off Japan's attempt to weaken the currency, the Swiss franc soared against the euro and dollar, and yields on benchmark German government bonds hit record lows.
Mounting U.S. economic concerns are likely to draw investors away from riskier assets and push up the yen, keeping pressure on Japan to intervene directly in currency markets for the first time in more than six years. Crude prices, seen as a proxy for world economic growth, also came under pressure, extending losses so far in August to 6.5 percent and staying on track for their biggest monthly decline since May.
World stocks measured by the MSCI All-Country World Index
lost 0.7 percent. The index is down 4.1 percent in August and was headed toward its worst monthly performance in three months.
Tokyo's Nikkei average shed 3.6 percent, its worst daily drop in three months, after the Bank of Japan's move the day before to boost cheap loans to commercial banks failed to curb the yen's strength.
U.S. stock index futures eased 0.3 to 0.4 percent, indicating a weaker start for Wall Street ahead of the minutes of the Federal Reserve's last meeting on August 10. Monday, U.S. shares fell 1.4 to 1.6 percent.
In Europe, the FTSEurofirst 300 index dropped 1 percent and the Thomson Reuters Peripheral Eurozone Countries Index fell 0.7 percent.
We've have had a string of weak numbers, and now even second-tier economic data can have a big impact on the market, said Joost Van Leenders, investment specialist allocation and strategy at BNP Paribas Investment Partners in Amsterdam.
We're still 'underweight' equities because of the economic outlook. We've been expecting a slowdown in the second half of the year with the boom from inventories and stimulus spending fading, and it has actually been a bit worse than we had anticipated.
The VDAX-NEW volatility index, Europe's main barometer of investor anxiety, rose 2.7 percent. The higher the volatility index, the lower investors' appetite for risk.
YEN NEAR 15-YR HIGH
The dollar was down 0.2 percent at 84.42 yen, not far from its 15-year low of 83.58 hit last week. The U.S. currency fell 2.4 percent against the Japanese currency this month after sliding 2.2 percent in July.
Japan's ministry of finance is sending signals that is willing to intervene but clearly people remember its struggle with intervention a few years ago, said Simon Derrick, head of currency research at Bank of New York Mellon.
If they don't intervene when the yen is at 84, when will they do it? Once its goes to all time lows? I think their resolve of staying away from intervention will be tested.
Japanese Finance Minister Yoshihiko Noda repeated Tuesday that the government would take decisive action on currencies -- usually seen as code for intervention -- when necessary, but reaction in the market was limited. The yen has gained more than 9 percent versus the greenback so far this year.
The euro fell to an all-time low against the Swiss franc, which also hovered close to a seven-month high against the dollar.
Yields on benchmark 10-year German Bunds hit record lows at 2.085 percent, while those on 10-year U.S. Treasuries slipped 2 basis points to 2.5108 percent, hovering near 18-month low.
In the commodity market, oil lost 1.3 percent to trade below $74 a barrel, while copper dropped 0.7 percent but was still up 1.5 percent this month.
(Additional reporting by Blaise Robinson in Paris, and Atul Prakash, Anirban Nag and William James in London; Editing by John Stonestreet)