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 U.S. Federal Reserve.
The U.S. dollar climbed to a seven-month high against major currencies 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 per cent 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 per cent 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 fell 4.5 per cent, bringing the year-to-date loss to 16 per cent.
North American stocks fell sharply for a fourth straight day. The Dow Jones industrial average ended down 391.01 points, or 3.51 per cent, at 10,733.83. The Standard & Poor's 500 Index was down 37.20 points, or 3.19 per cent, at 1,129.56. The Nasdaq Composite Index was down 82.52 points, or 3.25 per cent, at 2,455.67.
In Toronto, the S&P/TSX Composite Index slid 392.50 points, or 3.28 per cent, to 11,562.51.
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 down 4.7 per cent. Emerging markets stocks slid 6.5 per cent.
The Fed's statement that the U.S. economy faces "significant downside risks" and worry that the U.S. central bank's $400-billion (U.S.) 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 U.S. dollar rose 1.3 per cent 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 per cent 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 per cent 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 per cent from 1.87 per cent late on Wednesday. The 30-year bond climbed 4-21/32, its yield falling to 2.79 per cent – the lowest since January 2009.