World stocks and commodities tumbled on Thursday as weak data from China crystallized investor fears of a global recession one day after a grim economic outlook from the U.S. Federal Reserve.
Stocks tumbled more than 4 percent and commodities took a beating. The U.S. dollar climbed to a seven-month high against major currencies <.DXY> as investors fled risky assets.
Weak data from Germany and China helped push investors to the safety of U.S. government bonds, where benchmark yields again touched lows not seen in 60 years.
Data showing contraction in China's manufacturing sector for a third straight month helped drive down oil prices by more than 4 percent in London and sent the price of copper to a one-year low.
Gold, a traditional safe haven, slumped more than 3 percent as the dollar strengthened.
Thursday's market meltdown came after weeks of worries that Europe's debt crisis could freeze the global financial system, and a day after the Federal Reserve disappointed markets with its latest effort to boost the economy by lowering long-term borrowing costs. The Fed also spooked investors with a particularly stark assessment of the U.S. economic outlook.
Global growth worries today are even more prominent than the sovereign crisis, and that's not because sovereign crisis risk has diminished, it's because global growth worries have clearly increased, said Patrick Moonen, equity strategist at ING Investment Management.
World stocks as measured by MSCI <.MIWD00000PUS> hit a 13-month low and were last down 4.7 percent, bringing the year-to-date loss to 16.3 percent.
The decline also came amid concerns that the U.S. government is headed for another budget fight. The House of Representatives unexpectedly defeated a bill that would fund the federal government past September 30.
Here we are, likely facing yet another recession, lacking in confidence, with limited jobs opportunity, hanging our star on a president and Congress that can't agree on what day it is, while offering very little hope of anything meaningful in terms of a jobs solution or a fix for the housing market, said Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, Tennessee.
The Fed's statement that the U.S. economy faces significant downside risks and worry that the U.S. central bank's $400 billion program would be insufficient to jump-start growth brought fears of another global recession to the forefront.
Investors, already worried about a possible Greek debt default and the euro zone's intractable debt crisis, see governments unable to respond to the problems.
U.S. stocks lost more than 3 percent, extending losses for a fourth straight session, and European shares slumped to a 26-month closing low.
The Dow Jones industrial average <.DJI> was down 430.41 points, or 3.87 percent, at 10,694.43. The Standard & Poor's 500 Index <.SPX> was down 41.81 points, or 3.58 percent, at 1,124.95. The Nasdaq Composite Index <.IXIC> was down 84.81 points, or 3.34 percent, at 2,453.38.
In Europe, the FTSEurofirst 300 <.FTEU3> closed down 4.7 percent. Overnight in Asia, Japan's Nikkei <.N225> ended down 2.07 percent.
Investors piled into safe-haven assets, sparking a rally in the U.S. currency and government bonds.
Data showing that business activity in Germany grew at its weakest pace in more than two years in September and new orders fell for a third month added to the gloom on the global economy.
The dollar hit a seven-month high against a basket of major currencies <.DXY>, and last rose 1.4 percent to 78.453. The euro fell to an eight-month low of $1.3384, its lowest since January, and last fell 0.7 percent to $1.3468.
Gains in the dollar sparked a broad retreat in the commodities sector. Spot gold was last around $1,741.
U.S. crude futures were down $4.98 at $80.96 a barrel, while Brent futures were $4.40 lower at $105.98 a barrel.
Benchmark 10-year notes rose a point, their yields falling to 1.78 percent from 1.87 percent late on Wednesday.
The 30-year bond climbed 2-26/32, its yield falling to 2.87 percent - the lowest since January 2009 - from 2.99 percent late on Wednesday.
A big-time asset allocation trade is going on which seeks the safety of U.S. dollar fixed-income Treasury product, said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Ten-year German yields hit a record low.
(Additional reporting by Chris Reese Ellen Freilich in New York; Editing by Leslie Adler)