World stocks hit their lowest in six weeks on Wednesday and oil prices fell after China's November factory activity shrank at its sharpest pace in 32 months, reviving fears of an abrupt slowdown for the world's second largest economy.
Adding to global growth concerns, manufacturing in European heavyweight Germany contracted for a second straight month, and at a faster rate, as export demand slumped.
The souffle we hoped we were going to eat is collapsing in front of us. We had hoped for a soft landing in China, better figures out of the United States and progress in Europe, Justin Urquhart Stewart, director at Seven Investment Management, said.
The evidence of weakening in China, whose rapid growth has provided a major prop for the world economy, came a day after the United States cut its third quarter growth figure.
However, the rush to safe-haven assets has pushed returns on them so low that they are less attractive to hold.
Germany's debt auction on Wednesday was technically uncovered, sending the yields on 10-year German Bunds 6.6 basis points higher to 1.977 percent -- still lower than inflation. Meanwhile, the euro zone's sovereign debt crisis is eating into business and consumer confidence as well as leaving investors with ever decreasing options.
The other concern about holding German paper is over the cost to Berlin of the escalating crisis.
It is a complete and utter disaster, said Marc Ostwald, strategist at Monument Securities in London.
It really tells you that the Bund yields are at the completely wrong level ... never mind that they are a safe haven. There's certainly a partial element of 'they (investors) would rather not have euros' in there.
Nevertheless, the poor auction results hurt the euro, which fell to a six-week low against the dollar. The common currency was down 0.9 percent at $1.3395.
This is a poor German bond auction we talking of, not a peripheral euro zone economy, said Ankita Dudani, G-10 currency strategist at RBS Global Banking.
It adds fuel to the fire and adds pressure on the European Central Bank to do something (about the debt crisis). Having said that, I think the euro's losses are likely to run out of steam around these levels with investors likely to be light ahead of Thanksgiving.
The dollar, which has been benefiting from recent investor unease, rose 0.7 percent against a basket of major currencies <.DXY> to hit its highest in six weeks.
U.S. stock index futures fell around 0.7 percent, signalling a weak open for Wall Street.
STOCKS HIT SIX-WEEK LOW
World stocks measured by the MSCI All-Country World Index fell 0.6 percent to their lowest level since October 10.
The global gauge was down for the eighth straight session, its longest losing run since late July and early August when the
debt crisis that began in Greece two years ago spread to Italy. The world index has lost 13.7 percent this year.
Europe's FTSEurofirst 300 <.FTEU3> was flat, while Japan's Nikkei average <.N225> eased 0.4 percent.
Brent crude dropped 1.1 percent to trade below $108 a barrel, while copper prices slipped 1.3 percent to above $7,200 a tonne.
Gold eased 0.5 percent after rising 1.1 percent the previous session. The precious metal has risen nearly 20 percent this year, on track for its 11th straight year of gains.
However, the pace of deterioration in European, U.S. and Japanese companies' earnings momentum moderated, Thomson Reuters I/B/E/S data showed, indicating analysts' downbeat outlook on corporate profitability had eased, which may give equities some support amid the concerns over the euro zone debt crisis.
The data showed earnings momentum -- analysts' upgrades minus downgrades as a percentage of total estimates -- for STOXX Europe 600 companies was -15 percent, versus -19.8 percent a month ago.
S&P 500 <.SPX> companies' earnings momentum moderated to -3.4 percent from -18.2 percent last month, while that for Japan's Topix companies was -8.5 percent, from -11.2 percent in October.
(Additional reporting by Brian Gorman, Anirban Nag, Marius Zaharia and William James in London; Editing by Ruth Pitchford/Toby Chopra)