Stock markets across the world slid to six-week lows on Wednesday, with Wall Street on course for a sixth straight day of losses as slowing factory activity in China and Germany increased recession fears.
The euro fell to its weakest since October 6 after Germany suffered one of its least successful debt auctions since the single currency was launched. It was a dangerous signal that the euro zone's prime safety play, German Bunds, were starting to lose appeal from investor frustration over the lack of new policy measures to halt the bloc's debt crisis.
Commodity prices also fell. Copper hit one month-lows, oil was headed for its worst week since early October and sugar sunk to 5-1/2 month lows.
Manufacturing in China shrank at the sharpest pace in 32 months in November, reviving fears of an abrupt slowdown for the world's second-largest economy. In Germany, Europe's manufacturing heavyweight, factory activity contracted for a second straight month, and at a faster rate, as export demand slumped.
Clearly Europe is continuing to drive the bus -- the market is exhausted. It is tired of the lack of leadership on both sides of the pond, tired of the continuing drama that is playing out ... that no one seems to be paying attention to, said Ken Polcari, managing director at ICAP Equities in New York.
The Chinese economy is slowing and the authorities are waking up to that fact... It's now a question of whether they are prepared to ease monetary conditions as a result, said Nic Brown, an analyst at London's Natixis.
Polcari added: The path of least resistance is lower because the market is starting to say to you it is getting disgusted with the lack of any concrete plan. Whether it the ECB monetizing the debt, whatever it is, the market is not getting anything -- and so the market is telling you it is disgusted.
The dollar climbed to a six-week peak against the euro and hit session highs against the yen as investors continued to shun risk and seek safety in the currency of the world's largest economy.
Treasuries prices dipped after government data showed new U.S. claims for unemployment benefits held below 400,000 for the third straight week, suggesting the labour market was gaining some traction.
U.S. durable goods orders excluding transportation, meanwhile, rose 0.7 percent after a downwardly revised 0.6 percent increase in September.
U.S. consumer spending also edged up, by 0.1 percent, although it slowed sharply from a revised 0.7 percent increase in September as households took advantage of the largest increase in income in seven months to rebuild savings.
Around 7:00 p.m. (British time), the Dow Jones industrial average <.DJI> was down 198.13 points, or 1.72 percent, at 11,295.59. The Standard & Poor's 500 Index <.SPX> was down 21.76 points, or 1.83 percent, at 1,166.28. The Nasdaq Composite Index <.IXIC> was down 50.83 points, or 2.02 percent, at 2,470.45.
On the eve of the U.S. Thanksgiving holiday, trading volume was likely to be low, amplifying turbulence, traders said.
I think that after all the losses we've suffered, the market is oversold. But the fact that we've fallen so far so fast suggests there could still be further room to drop, said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.
World stocks, as measured by the MSCI All-Country World Index <.MIWD00000PUS>, tumbled around 2 percent to their lowest levels since October 6.
The global gauge was down for the eighth straight session, its longest losing run since late July and early August, when the debt crisis, which began in Greece two years ago, spread to Italy. The index has lost more than 13 percent this year.
Europe's FTSEurofirst 300 <.FTEU3> ended down 1.3 percent.
The benchmark 10-year U.S. Treasury note was up 8/32 in price, its yield at 1.8946 percent versus Tuesday's close of around 1.93 percent.
In the commodity markets, Brent crude oil pared losses to stand down 1.6 percent at around $107 a barrel, after falling 2 percent earlier. Copper futures in New York were off 1.4 percent at $3.28 a lb.
(Reporting by Barani Krishnan; Additional reporting by Chuck Mikolajczak. Dominic Lau, Brian Gorman, Anirban Nag, Marius Zaharia and William James in London; Editing by Dan Grebler)