Persistent fears about the world economy battered global stocks again Monday and drove investors toward safer assets despite expectations of more interest cuts from the Federal Reserve to bolster growth.
Investors around the world have been jittery for weeks about a U.S. slump, which would likely weaken demand for exports and drag on global growth. There is also concern about a worldwide credit crunch triggered by rising defaults in risky U.S. mortgages, which has led to mountains of bad assets at major American and European banks.
Equity markets in Europe and Asia fell sharply with Japan’s Nikkei dropping nearly 4 percent on worries that the U.S. economy was already dragging Japan’s down into recession.
China's benchmark index plummeted 7.2 percent to its lowest point in six months on concerns that a recession in the United States would mean less demand for Chinese-made products. Hong Kong's market sank 4.3 percent while India's Sensex dropped 3.5 percent in afternoon trading.
The pan-European FTSEurofirst 300 was down 1.3 percent, taking January’s losses alone to near 13 percent.
U.S. stock index futures also were down, suggesting that Wall Street was poised to drop again when markets open.
"There's a lot of uncertainty out there: uncertainty over the U.S. economy, uncertainty over China's economy," said Rob Hart, an analyst with Morgan Stanley in Hong Kong.
China's Shanghai Composite index plunged 342.39 points to 4,419.29 amid worries about weaker demand from American consumers. Concerns over the potential impact of a prolonged bout of severe winter weather also took a toll.
"Investors, especially institutional investors, are very cautious," said Chen Huiqin, an analyst at Nanjing-based Huatai Securities. She said investors were waiting for possible "market rescuing" signals from the Chinese government.
"That could have a strong impact on the market," Chen said.
Japan's benchmark Nikkei 225 index fell 3.97 percent to close at 13,087.91, erasing its jump on Friday. Markets in South Korea and Taiwan also dropped.
Last week was a tumultuous one for global markets, and it appeared that the volatility would continue.
Asian and European stocks had plunged early last week on worries about slower U.S. growth. They rebounded after a hefty three-quarters cut in U.S. interest rates by the Federal Reserve last Tuesday, as well as news of a U.S. stimulus package. By Friday, markets in Hong Kong and Tokyo had nearly recovered their early week losses.
But investors in Asia dumped shares again Monday after Wall Street sank Friday, when the Dow Jones industrials slid 1.38 percent and the technology-heavy Nasdaq composite index declined 1.47 percent.
The dollar fell 0.1 percent to 106.54 yen, while the euro was flat at 156.68 yen. The single currency was up 0.2 percent against the dollar at $1.4703.
Awaiting Fed's next decision
Some traders said Asian markets were dropping on concern that the Fed may not slash interest rates again — or as much as expected — when its policy planners meet Tuesday and Wednesday.
"The possibility for a 50 basis points cut is looking less likely," said Castor Pang, a strategist at Sun Hung Kai Financial in Hong Kong, pointing to future prices in New York.
Dow futures were down 141 points, or 1.15 percent, to 12,095, while Nasdaq futures were down 24 points, or 1.34 percent, to 1,769.5.
Japan's economy may already be contracting, said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan.
He pointed out that five of the 11 components of Japan's business condition diffusion index have already hit highs and begun deteriorating. Declines in six of the 11 components often indicates a recession is coming.
"A recession, which was nothing more than a risk scenario six months ago, is now turning into our main scenario," Yamakawa said in a report released Friday.
Japanese traders also were cautious ahead of a slew of corporate quarterly earnings this week, including Honda Motor Co. on Wednesday and Sony Corp. on Thursday.