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European and US equities sank Thursday on fears that rising interest rates will spark a global recession, while the pound clawed back ground one day after emergency bond-market intervention from the Bank of England.
"Higher US treasury yields, inflation and rising recession fears are back in the driving seat," said market analyst Fiona Cincotta at City Index.
German inflation accelerated sharply in September, official data showed Thursday in the latest indication that Europe's biggest economy is buckling under the pressure from soaring energy prices.
Consumer prices spiked 10.0 percent compared to the same month a year earlier.
German Chancellor Olaf Scholz announced that the nation would plough 200 billion euros into shielding households and businesses from skyrocketing energy costs in the wake of Russia's invasion of Ukraine.
However, Frankfurt stocks slumped 1.7 percent, while Paris fell 1.5 percent.
London equities dropped 1.8 percent as the pound rebounded somewhat from earlier falls, one day after the BoE snapped up UK bonds to avert a risk to UK financial stability.
"The BoE rode to the rescue of the markets for one day, and the overall impact has been limited," said Cincotta, although the pound bounced more than one percent higher to climb above $1.10.
The BoE, the European Central Bank, the US Federal Reserve and many other counterparts are ratcheting up interest rates to fight decades-high inflation.
Wall Street's main stock indices slumped as US treasury yields continued to rise, and with the latest data showing a drop in first-time unemployment benefit claims falling under 200,000 for the first time since May.
The reading will be used by the Fed "as a basis to maintain an aggressive line with its rate hikes" because the bank sees a softening of the labour market as necessary to bring inflation back down to its two-percent target, said Patrick O'Hare, analyst at Briefing.com.
The Dow was down 1.6 percent in late morning trading, while the broader S&P 500 fell 2.1 percent, and the tech-heavy Nasdaq Composite tumbled 2.9 percent.
- 'Pessimistic' investors -
"There's a growing list of reasons why investors are pessimistic right now, with the prospect of an interest-rate recession being right up there," Craig Erlam, analyst at trading platform OANDA, told AFP.
"But we are increasingly seeing pressures mounting and forcing responses from policymakers that are not normal. That started out as super-sized rate hikes, and now includes Japanese foreign-exchange interventions and the BoE intervening in bond markets."
Stocks had also rallied Wednesday partly after the BoE's surprise purchase, which came after Britain's recent tax-cutting budget sparked soaring bond yields and sent the pound to a record dollar low on Monday.
The BoE launched a two-week programme to buy long-term UK bonds, capped initially at £65 billion ($71 billion), as UK pension funds scrambled to sell investments to remain solvent.
While the UK government's 30-year sovereign bond yield retreated further to 3.97 percent, having briefly surged Wednesday to a 1998 peak at 5.14 percent, the yield on 10-year bonds began to march higher.
Meanwhile, sentiment was also dented this week by leaks from the undersea Nord Stream pipelines running from Russia to Europe.
That sparked accusations of sabotage amid strained relations between the West and sanctions-hit Russia over the latter's war on Ukraine.
- Key figures around 1530 GMT -
New York - Dow: DOWN 1.6 percent at 29,217.11 points
EURO STOXX 50: DOWN 1.7 percent at 3,279.04
London - FTSE 100: DOWN 1.8 percent at 6,881.59 (close)
Frankfurt - DAX: DOWN 1.7 percent at 11,975.55 (close)
Paris - CAC 40: DOWN 1.5 percent at 5,676.87 (close)
Tokyo - Nikkei 225: UP 1.0 percent at 26,422.05 (close)
Hong Kong - Hang Seng Index: DOWN 0.5 percent at 17,165.87
Shanghai - Composite: DOWN 0.1 percent at 3,041.20 (close)
Pound/dollar: UP at $1.1024 from $1.0689 on Wednesday
Euro/dollar: DOWN at $0.9777 from $0.9735
Euro/pound: UP at 88.65 pence from 89.40 pence
Dollar/yen: UP at 144.51 yen from 144.16 yen
Brent North Sea crude: DOWN 0.2 percent at $89.13 per barrel
West Texas Intermediate: UP 0.1 percent at $82.24 per barrel
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