World stocks and commodities tumbled on Thursday as weak data from China crystallized investor fears about 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 safe U.S. government bonds, where benchmark yields again touched lows not seen in 60 years.
The shakeout also called into question investors' reliance on gold as a safe place for money, as the price of the precious metal fell more than 4 percent.
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 with a strategy to lower long-term borrowing costs.
If this were a movie, it would be a horror film, and nearly everyone would be slashed to death, said Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, Tennessee.
World stocks as measured by MSCI <.MIWD00000PUS> were down 4.3 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 Giddis.
Investors were unnerved on Wednesday by 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.
That brought fears of another global recession to the forefront. Investors are already worried about a possible Greek debt default and the euro zone's intractable debt crisis, and see authorities and governments unable to respond to the problems.
A possible Greek debt default could trigger economic fallout on the entire euro zone and possibly beyond.
U.S. stocks lost more than 2 percent, extending losses for a fourth straight session and European shares fell 4 percent to a two-year low, dragging an index of global equities to a one-year trough.
The Dow Jones industrial average <.DJI> was down 337.77 points, or 3.04 percent, at 10,787.07. The Standard & Poor's 500 Index <.SPX> was down 31.40 points, or 2.69 percent, at 1,135.36. The Nasdaq Composite Index <.IXIC> was down 57.95 points, or 2.28 percent, at 2,480.24.
In Europe, the FTSEurofirst 300 <.FTEU3> fell 4.2 percent. Britain's FTSE 100 <.FTSE> lost 4.3 percent. Japan's Nikkei <.N225> closed down 2.07 percent.
Business activity in Germany grew at its weakest pace in more than two years in September and new orders fell for a third month.
Adding to gloom about the global economy, China's manufacturing sector contracted for a third consecutive month in September, suggesting the world's No. 2 economy may not be able to provide much of a counterweight to flagging U.S. and European growth.
Long-dated U.S. government debt rallied strongly, extending the previous day's gains. The 30-year bond climbed 3-4/32, its yield falling to 2.84 percent - the lowest since January 2009 - from 2.99 percent late on Wednesday.
Benchmark 10-year notes rose a point, their yields falling to 1.76 percent from 1.87 percent late on Wednesday.
Ten-year German yields hit a record low of 1.667 percent.
The U.S. dollar climbed to a seven-month high against a basket of major currencies <.DXY> as investors dumped riskier trades in favor of the world's most liquid currency. The index was last up 1.4 percent at 78.417.
The dollar's strength and the risk aversion that we have seen in recent weeks have picked up steam, said Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase.
The euro fell to an eight-month low of $1.3384, its lowest since January, and was last down 1 percent at $1.3429.
Gains in the dollar sparked a broad retreat in the commodities sector. Spot gold lost more than $50 to trade around $1,727.
U.S. crude futures were down $4.13 at $81.79 a barrel, while Brent futures were $3.79 lower at $106.57 a barrel.
(Additional reporting by Jeremy Gaunt in London and Chris Reese in New York; Editing by Kenneth Barry)