Stocks slammed on global worries

Global equity markets fell sharply on Wednesday and investors sought the safety of government bonds as a deteriorating outlook for economic growth, led by the US, fanned an aversion for holding risky assets.

Bond yields in Germany and the US touched record lows. Sliding commodity prices helped propel the largest one-day rise in the dollar versus the euro since the "flash crash" of May 6, while the yen rose to its strongest level in 15 years.

"Developed and emerging markets showed investor concern about slowing economic growth and increased fears of the advent of some kind of dip, if not a double dip," said John Stoltzfus, strategist at Ticonderoga Securities.

The mood of risk aversion gathered pace after reports on Wednesday that Chinese industrial output had grown at its slowest rate for 11 months. Weaker reports followed in Japan and Europe. Data for June on Wednesday showed the US trade gap at a 21-month high of $49.9bn, indicating that the world's largest economy cannot rely on foreign trade to offset slowing activity.

The White House said on Wednesday that the US was "not immune to slowdowns that might start in other parts of the world".

The US Federal Reserve lowered its outlook for the economy following its policy meeting on Tuesday and said it would start buying Treasury debt in order to maintain the size of its massive $2,300bn balance sheet.

The Fed's extension of its easy monetary policy was expected to boost the appetite for risky assets. Wednesday's weaker global data unnerved investors, however, amid uncertainty as to whether the central bank will have to embark on much larger bond purchases later this year should the economy falter further.

"Having the Fed cut its forecasts again is too tough for the equity market to take," said David Rosenberg, chief economist at Gluskin Sheff. "If you're bullish, you're now sweating. The economy is slowing and there may have to be a reappraisal of corporate earnings streams."

The S&P 500 was down 2.8 per cent by the close in New York on Wednesday. Following sharp falls in Europe and Asia the FTSE All World index dropped 2.7 per cent, its largest one-day decline since late June.

In Japan, industrial orders for July that were sharply weaker than forecast helped push the Nikkei 225 average down by 2.7 per cent.

The dollar surged 2.4 per cent to $1.2867 against the euro, which was left at its lowest level since the day of the release of European bank stress tests.