Equity markets across the world tumbled Tuesday as fears of spiking inflation set off a wave of selling across most bourses.

London stocks dived over 3.0 percent at one point before recovering some ground to close 2.5 percent lower.

Paris fell 1.9 percent and Frankfurt 1.8 percent.

Wall Street stocks also retreated, although the Nasdaq finished almost flat following a wave of bargain-hunting.

"European stock markets have taken a beating today over concerns about rising inflation expectations," said Michael Hewson, chief market analyst at CMC Markets UK.

Traders are fearful that surging inflation could force the world's central banks to wind back ultra-loose monetary policies earlier than forecast and damage the post-Covid recovery.

Earlier, Tokyo and Taipei each dropped more than 3.0 percent, while Hong Kong was off 2.0 percent.

Data showed a 6.8 percent rise in Chinese factory gate prices last month, the biggest jump in almost four years.

That is due to a rally in commodity prices -- particularly widely used copper and iron ore -- which has markets concerned that costs will spiral.

"Investors do appear to be freaking out a little bit over the recent sharp rise in commodity prices that we've seen in the past few weeks," said Hewson.

The yield on the 10-year US Treasury rose back above 1.6 percent, a move typically reflecting concerns about rising prices.

Analyst Patrick O'Hare at Briefing.com said markets were "wrestling with the general sentiment that most stocks are over-extended and due for a pullback, if not an actual correction."

US stock indices have soared to new heights on the prospects of a rebound in the economy, but there are concerns that share prices may have risen too far.

"This is a cutting of the fat," O'Hare said. "It's also a reminder that valuation always matters."

All eyes are now on the release this week of crucial data on US retail sales and consumer prices, with expectations for a sharp rise as the world's top economy reopens and vaccines allow people to return to normal life.

"Inflation is what keeps investors up at night," said Swissquote analyst Ipek Ozkardeskaya.

"And the latest Chinese figures did not help soothing investors' nerves," she added.

Traders are nervously awaiting inflation data, with expectations that US shoppers will send prices soaring as lockdowns are eased and the economy reopens Traders are nervously awaiting inflation data, with expectations that US shoppers will send prices soaring as lockdowns are eased and the economy reopens Photo: GETTY IMAGES NORTH AMERICA / KEVORK DJANSEZIAN

New York - Dow: DOWN 1.4 percent at 34,269.16 (close)

New York - S&P 500: DOWN 0.9 percent at 4,152.10 (close)

New York - Nasdaq: DOWN 1.0 percent at 13,389.43 (close)

London - FTSE 100: DOWN 2.5 percent at 6,947.99 (close)

Frankfurt - DAX 30: DOWN 1.8 percent at 15,119.75 (close)

Paris - CAC 40: DOWN 1.9 percent at 6,267.39 (close)

EURO STOXX 50: DOWN 1.9 percent at 3,946.06 (close)

Tokyo - Nikkei 225: DOWN 3.1 percent at 28,608.59 (close)

Hong Kong - Hang Seng Index: DOWN 2.0 percent at 28,013.81 (close)

Shanghai - Composite: UP 0.4 percent at 3,441.85 (close)

Euro/dollar: UP at $1.2148 from $1.2129 at 2100 GMT

Pound/dollar: UP at $1.4140 from $1.4118

Euro/pound: FLAT 85.91 pence

Dollar/yen: DOWN at 108.62 yen from 108.81 yen

Brent North Sea crude: UP 0.3 percent at $68.55 per barrel

West Texas Intermediate: UP 0.6 percent at $65.28 per barrel