World stocks fell to 13-month lows 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 Federal Reserve.
The U.S. dollar climbed to a seven-month high against major currencies <.DXY> as investors fled risky assets and sought safety in Treasuries, 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 and sent the price of copper to a one-year low. Weak euro zone data added to the gloom.
Even gold, a traditional safe haven, dropped nearly 5 percent to its lowest level in nearly one month as the dollar strengthened. The slump raised questions about the precious metal's validity as a safe haven.
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.
The MSCI World equity index <.MIWD00000PUS> fell 4.5 percent, bringing the year-to-date loss to 16 percent.
U.S. stocks fell sharply for a fourth straight day. The Dow Jones industrial average <.DJI> ended down 391.01 points, or 3.51 percent, at 10,733.83. The Standard & Poor's 500 Index <.SPX> was down 37.20 points, or 3.19 percent, at 1,129.56. The Nasdaq Composite Index <.IXIC> was down 82.52 points, or 3.25 percent, at 2,455.67.
Volume was heavy, a signal investors are selling in anticipation of more losses.
Energy and materials shares were among the hardest hit areas on worries of slowing worldwide demand, fed by signs of a slowdown in China.
It's tough to find anything that is a positive catalyst for the market, either domestically or internationally, said J.J. Kinahan, chief derivatives strategist for TD Ameritrade.
European shares slumped to a 26-month closing low, with the FTSEurofirst 300 <.FTEU3> down 4.7 percent. Emerging markets stocks <.MSCIEF> slid 6.5 percent.
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.
That prompted a stampede into safe-haven assets, sparking a rally in the U.S. currency and government bonds.
The dollar <.DXY> rose 1.3 percent to 78.363 in its largest one-day gain since early August. The euro fell as low as $1.3384, its lowest since January, and last traded down 0.6 percent at $1.3474.
The gains in the dollar sparked a broad retreat in the commodities sector. Spot gold was last around $1,737. The spike in volatility again has led to renewed debate about whether the precious metal was a haven at all.
Gold is never a safe haven, said Dennis Gartman, an independent investor in Virginia. When something can move 3, or 5 or 6 percent in the course of two days, that's not a safe haven. Safe havens should be quiet and stable...not violent.
U.S. crude oil fell $5.41 to settle at $80.51 a barrel. Brent crude lost $4.87 to end at $105.49.
The Reuters-Jefferies CRB index, a 19-commodity global benchmark for the asset class, hit its lowest point since early December.
Benchmark 10-year notes rose 1-9/32, their yields falling to 1.73 percent from 1.87 percent late on Wednesday. The 30-year bond climbed 4-21/32, its yield falling to 2.79 percent - the lowest since January 2009.
(Additional reporting by Chris Reese, Ellen Freilich and Barani Krishnan; Editing by Leslie Adler)