LONDON (Oct 14): Deepening worries over the health of the global economy dragged shares in Europe and Japan lower on Tuesday, while the dollar rebounded against the euro and yen from big declines the previous day.
With figures showing a slump in demand growth, oil prices fell. Brent crude dropped to just above $88 a barrel.
European shares opened lower. The pan-European FTSEurofirst 300 index was down 0.2 percent. The standout loser on European markets was British luxury handbag maker Mulberry , down 23 percent after warning full-year pre-tax profit would be significantly below expectations.
In Tokyo, Japan's Nikkei share average fell 2.4 percent, hitting lows last seen in mid-August, as traders got back to their desks following a holiday on Monday.
Other Asian shares fared better. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent as bargain-hunters stepped in after a fall of more than 10 percent since early September.
Investors have been cutting their exposure to riskier assets on worries about the U.S. Federal Reserve ending its bond-buying stimulus later this month, mounting risks of recession in the euro zone and a floundering Japanese economy.
Instead, they have been turning to low-risk government bonds, the Japanese yen and gold.
"There remains a palpable concern amongst investors that the worst may still be to come. The market is aware that tapering is due to end later this month and they are also aware that that means the next move for the Federal Reserve is to hike interest rates," said Angus Campbell, senior analyst at FxPro in London.
"At a time when global growth is fast becoming a worry, the combination of the two does not sit well with investors."
U.S. shares slid on Monday. The S&P 500 index fell 1.7 percent to rack up its biggest three-day slide since November 2011. The VIX volatility index - the so-called fear gauge - rose to 24.6 percent, its highest since June 2012 at the height of the euro zone crisis.
The dollar index, which measures the U.S. currency against a basket of others, fell 1 percent on Monday, its largest one-day drop in a year.
But on Tuesday, the dollar recovered half a percent against the euro to $1.2700 and a third of a percent against the yen to 107.23 yen.
The divergence in monetary policies in the United States on the one hand and the euro zone and Japan on the other helped push the dollar to a two-year high versus the euro and a six-year peak against the yen at the start of October.
But yields on U.S Treasuries have been falling as investors sought safe havens from the fall in stocks, making the dollar less attractive.
"Clearly there is downward pressure on yields in a lot of places. The irony is that a lot of the bond spreads are moving out in favour of the euro," said Simon Derrick, head of strategy at Bank of New York Mellon in London.
Brent crude futures for November delivery last traded at $88.53 a barrel, down 0.3 percent, having hit a four-year low of $87.74 on Monday.
The International Energy Agency sharply lowered its forecast for oil demand growth in 2015 and said prices may drop further
Kuwait has said OPEC is unlikely to cut production to support prices, while Saudi Arabia has privately told oil market participants it could be comfortable with $80 per barrel.
Gold held near its highest in four weeks, trading at $1,234 an ounce, close to Monday's four-week peak of $1,237.30.