Global stocks closed their worst quarter in nearly three years on Friday on nagging concerns about the world economy and the lack of a credible solution to Europe's debt crisis.
The euro and most commodity prices also fell as investors' search for safety drove up U.S. government bonds and the dollar.
Adding to a string of global data that has crushed growth-related assets in the past three months, China's manufacturing sector contracted for a third straight month in September while German retail sales slid at their sharpest pace in more than four years.
An unexpected rise in euro-zone inflation for September also moderated talk that the European Central Bank would cut interest rates. Still, the euro fell sharply to close its worst quarter against the U.S. dollar since mid 2010.
The combination of sovereign debt crisis, a slowing economy and really what appears to be ineffective leadership in Europe has led to this decline, and we expect that to continue to play out in the fourth quarter, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
U.S. stocks fell, closing their worst quarter since the collapse of Lehman Brothers in late 2008 with sharp declines.
The MSCI All Country World Index slumped 18 percent for the quarter, with a drop of 2.3 percent on Friday. It lost roughly $5.29 trillion in market capitalization in the quarter, according to Thomson Reuters Datastream.
On Friday, the Dow Jones industrial average dropped 240.60 points, or 2.16 percent, to 10,913.38. The S&P 500 fell 28.98 points, or 2.50 percent, to 1,131.42. The Nasdaq Composite slid 65.36 points, or 2.63 percent, to 2,415.40.
U.S. crude oil prices fell 4.1 percent on Friday, down more than 17 percent in the quarter. Copper, a key industrial metal that is a proxy for growth expectations, was down 25.8 percent over the last three months.
There is a lot of fear that GDP growth is going to slow down, or it's not going to be as fast as consensus estimates assume, said Adam Krejcik, an analyst at Roth Capital in Newport Beach, California. Generally speaking, there is a lot of fear out there, just a crisis of confidence.
Mining stocks were among the worst performers, hit by the news of slowing growth in China, the world's second-largest economy and an engine of global growth.
EURO OFF, BONDS FLY AMID THE GLOOM
The euro slipped versus the U.S. dollar and posted its biggest monthly drop in nearly a year, weighed down by the lack of a visible solution to the euro zone's deepening debt troubles.
The single currency fell to a low of $1.3384 and was last at $1.3392, down 1.5 percent for the day. For the month of September, the euro lost 6.6 percent, its weakest performance since November 2010.
In contrast, a gauge of the U.S. dollar against major currencies rose 0.9 percent.
A boost to the euro after Germany's parliament approved new powers for the euro-zone bailout fund proved fleeting after the data on the slump in German retail sales in August.
Leaders in Germany's ruling coalition said they opposed moves to increase states' liabilities to the bailout fund, keeping alive concerns that Europe will not be able to do enough to prevent the crisis from spreading.
The deepening economic gloom has prompted investors to slash bets on risky assets for most of the quarter that ended Friday.
The retreat continued to push safe-haven U.S. Treasury debt prices higher on Friday, with longer-maturity bonds posting their best quarter since the final period of 2008.
U.S. Treasuries held steady at higher price levels after the New York Fed announced the initial schedule for its $400 billion bond program, known as Operation Twist.
The benchmark 10-year note was last up 25/32 in price to yield 1.9172 percent, down from 2.00 percent late on Thursday.
The 30-year bond jumped 3-3/32 in price to yield 2.917 percent, down from 3.06 percent.
(Additional reporting by Karen Brettell, Wanfeng Zhou and Edward Krudy; Editing by Leslie Adler, Jan Paschal and Dan Grebler)