LONDON World stocks fell for a fifth day on Wednesday as China fuelled fears about its economy by allowing the yuan to weaken further and a nuclear test by North Korea added to a growing list of geopolitical worries.
European markets followed Asia into the red, with Britain's FTSE, Germany's DAX and France's CAC all 1.5 percent lower ahead of what was expected to be an equally rough start for Wall Street.
MSCI's 46-country All World index was flirting with a 3-month low and emerging market shares were at their lowest in more than six months.
Souring sentiment toward riskier assets in turn lifted safe-havens such as the Japanese yen, U.S. Treasuries, German Bunds and gold, while the pressure was firmly back on oil as both Brent and WTI fell under $35 a barrel.
"There is a very strong sense of risk-off again," said John Hardy, head of FX strategy at Saxo Bank also flagging reports that Apple, one of the world's bellwether tech firms, was set to cut iPhone production by almost a third.
"It's also about China," Hardy said. "The pace of the currency weakness, is this a sign that they are losing control a bit?"
Traders and economists fear the yuan's depreciation may mean the world's second-biggest economy is even weaker than had been expected and that it could trigger another wave of competitive devaluations around Asia and in other key economies.
The People's Bank of China surprised on Wednesday by setting the yuan's official midpoint rate at its weakest level in 4-1/2 years at 6.5314 per dollar. That triggered further selling in the 'offshore' yuan, which slumped to 6.6956 per dollar, its lowest since trading began in 2010.
There was more gloomy economic data to digest, too, with a PMI survey showing China's services sector activity expanded at its slowest rate in 17 months in December.
State Chinese media meanwhile reported that a selling ban on major shareholders brought in to help arrest a market crash last summer would remain in place until the government publishes new rules on such disposals.
That helped drive China's blue chip shares buck the global direction, with the CSI300 index closing up 1.75 percent and the Shanghai Composite finishing 2.3 percent better off.
They were among very few risers, however, as North Korea's announcement that it had successfully conducted a test of a hydrogen nuclear device added to geopolitical worries stirred by a row between Saudi Arabia and Iran.
South Korea's KOSPI and the won both fell and Japan's Nikkei extended losses to close down 1 percent.
In Europe, a 3.5 percent fall in mining and natural resource stocks left the FTSEurofirst 300 1.5 percent lower at 1,389 points, its lowest since mid-December.
The mood was similarly cautious in currency and bond markets, with the yuan's accelerated fall dragging down other emerging currencies like the Malaysian ringgitand Thai baht and the Aussie and Kiwi dollars.
The U.S. dollar touched a near three-month low of 118.35 yen while euro slid to a nine-month trough of 127.38 yen and dipped to $1.0720 at one stage as a top European Central Bank policymaker reiterated its willingness to keep printing money.
That also helped push yields on German 10-year Bunds to their lowest since the ECB's last meeting in December, which delivered less in terms of policy stimulus then most traders had been expecting. The 10-year U.S. Treasury yield fell by about 5 basis points to 2.19 percent.
"European government bond markets are enjoying a (balanced) environment, with sliding inflation expectations augmenting the lingering emerging market concerns," Commerzbank rate strategist Michael Leister said.
Adding to the risk-off mood, crude oil prices hit new 11-year lows as the face-off between Saudi Arabia and Iran over Riyadh's execution of a Shi'ite cleric was seen extinguishing any chance of major producers cooperating to cut production.
Global benchmark Brent crude was trading at $34.93 a barrel at 12300 GMT, down $1.50 or 1.5 percent from the previous day's settlement and the lowest since 2004.
U.S. crude futures were down $1 at $34.95 per barrel after slipping 79 cents on Tuesday with China-attuned industrial metal copper down at a 2-week low of $4,595 a tonne.
The talk of Apple slashing iPhone production pushed its shares down 2.44 percent to $102.71 in premarket trading.
Investors will also keep an eye out for a host of U.S. data scheduled to be released later. The Federal Reserve issues minutes from its Dec. 15-16 meeting, where it raised interest rates for the first time in nearly a decade.
The ADP National Employment Report for December, is likely to show an addition of 192,000 jobs. The data, expected at 8:15 a.m. ET (1315 GMT), comes ahead of a more comprehensive non-farm payroll report on Friday.
(Additional reporting by Christine Kim and Yena Park in Seoul; Pete Sweeney and Samuel Shen in Shanghai; Editing by Toby Chopra)
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Updated Date: Jan 07, 2016 04:45 AM