The worst market sell-off in almost a year sent global stock, bond and commodity prices tumbling yesterday amid fresh worries about a return to global recession.
The Dow Jones industrial average, a widely tracked measure of large US stocks, fell 4.3 per cent on Thursday and traded down yesterday after the release of better than expected US jobs data. Asian stocks plunged, with Japan's Nikkei index off by 3.72 per cent yesterday and Hong Kong's Hang Seng Index down 4.29 per cent.
The US jobs report showed the world's biggest economy added 117,000 jobs in June, better than the 85,000 that analysts had expected.
European stocks fell even as the European Central Bank (ECB) reactivated a bond-buying programme to prop up Portuguese and Irish government debt. The UK's FTSE 100 closed down 2.7 per cent yesterday.
"We would not rule out further weakness in equity markets," said John Higgins, a senior markets economist at Capital Economics in London.
A spate of bad news from some of the world's biggest economies in recent days has spooked investors and threatened hopes for a gradual global economic recovery. The postive US jobs figures were preceded by a report this week showing stagnant consumer spending in June and slow manufacturing activity.
With investors fleeing stocks for safer assets, gold prices have touched record highs in recent days. The metal moderated yesterday afternoon to about US$1,665 (Dh6,115) an ounce.
While his company was not yet forecasting a return to recession and had expected markets to fall this year, Mr Higgins said risks were rising globally and policy makers would have trouble digging themselves out if the world did lurch back into another slowdown.
Central banks cut interest rates to near zero to free up lending after the financial crisis, and many governments tried to stimulate economic activity with billions of dollars of government spending. A repeat of such expensive tactics may not be possible, Mr Higgins said, a factor that could weaken investor confidence.
"We had a big financial market meltdown and a big recession a few years ago, and policy makers pulled out the stops in fiscal and monetary policy," he said. "The economy is perhaps teetering on the edge of recession now, and can they pull out the stops again?"
Yesterday's US jobs figures were a rare ray of hope for the deteriorating global economic situation, but they failed to calm uneasy investors.
Markets were also weighing new figures on second-quarter economic growth in Italy and Spain that showed only slim gains. Italy's GDP grew at a 0.3 per cent clip during the quarter. Spain's economy registered sluggish 0.7 per cent year-on-year growth.
Italy and Spain have come under increased scrutiny in recent days as their government bond yields hit euro-era highs. Yields move inversely to prices, and a high yield indicates weak investor sentiment.
Elsewhere in Europe, the ECB left its 1.5 per cent interest rate unchanged on Thursday as had been expected. Jean-Claude Trichet, the ECB president, said after the announcement that it was "clear that we have at a global level a slowing down".
Oil prices, meanwhile, have fallen sharply during the recent sell-off, reflecting worries that an economic slowdown in the developed world could impact demand for the commodity.
Brent crude has fallen by about 9 per cent in the past two weeks, and traded at $108.11 a barrel yesterday.
Currency markets have also fluctuated alongside volatile stock and commodity markets. The dollar fell against the yen after yesterday's US jobs report, although the Japanese currency has stayed strong in the past week as investors looked for safe places to park their cash amid renewed fears of an economic slowdown on both sides of the Atlantic.