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Oil prices slumped more than four percent and stock markets retreated Tuesday as worries about growth in China and the United States weighed on sentiment.
A stream of indicators, including the latest manufacturing data, has highlighted weakness in the world's two largest economies.
Trade Nation analyst David Morrison said "it seems that the oil market is indicating a lack of confidence in the global economic outlook, not only due to the downturn in China, but also from increasing uncertainty about the pace of any slowdown across the US."
With oil producers reluctant to cut output -- and the OPEC oil cartel and its allies have even been considering boosting production -- oil prices have been on a downward trend.
"The fact that recent data shows no signs of any acceleration in import demand in China, Europe or North America points to a situation where the oil market is not going to be as tight as expected a few months ago," said market analyst Fawad Razaqzada at City Index and FOREX.com.
Oil prices fell even further -- with Brent oil, the main international contract, falling under $74 per barrel to its lowest point this year -- after US manufacturing data came in below forecasts.
While the August reading of the ISM manufacturing survey improved somewhat from July, and will boost the prospects for a faster pace of US interest-rate cuts set to begin this month, investors have recently become worried that the Federal Reserve may have waited too long and the economy may tip into recession.
"With a rate cut in September essentially a done deal, the speed of further cuts will depend on upcoming data," said Razaqzada.
While several US indicators are due out this week, investors will be paying particular attention on Friday's jobs figures as the Fed has indicated it is putting more emphasis on developments in employment as inflation has slowed.
In foreign exchange, the yen strengthened after Bank of Japan chief Kazuo Ueda restated his intention to lift interest rates again if inflation and the economy meet its forecasts.
The bank's surprise decision to hike in July, hours before the Federal Reserve indicated it was ready to begin cutting US borrowing costs, sparked a massive unwind of the so-called "yen carry trade" in which investors used the cheap currency to buy high yielding assets like stocks.
In company news on Tuesday, shares in Cathay Pacific slipped as the Hong Kong carrier said that 15 of its Airbus A350 jets needed new engine parts after inspecting its entire fleet, which was grounded following a "first of its type" engine component failure.
But shares in British engine manufacturer Rolls-Royce, whose Trent XWB-97 engines powered the planes, gained 2.4 percent after starting the week with a 6.5-percent drop as not all of Cathay's A350s were affected.
- Key figures around 1530 GMT -
Brent North Sea Crude: DOWN 4.5 percent at $74.03 per barrel
West Texas Intermediate: DOWN 4.0 percent at $70.61 per barrel
New York - Dow: DOWN 1.0 percent at 41,145.85 points
New York - S&P 500: DOWN 1.3 percent at 5,573.87
New York - Nasdaq Composite: DOWN 2.2 percent at 17,324.52
London - FTSE 100: DOWN 0.8 percent at 8,298.46 (close)
Paris - CAC 40: DOWN 0.8 percent at 7,575.10 (close)
Frankfurt - DAX: DOWN 1.0 percent at 18,747.11 (close)
EURO STOXX 50: DOWN 1.2 percent at 4,912.52 (close)
Tokyo - Nikkei 225: FLAT at 38,686.31 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,651.49 (close)
Shanghai - Composite: DOWN 0.3 percent at 2,802.98 (close)
Dollar/yen: DOWN at 145.80 yen from 147.01 yen on Monday
Euro/dollar: DOWN at $1.1041 from $1.1067
Pound/dollar: DOWN at $1.3096 from $1.3147
Euro/pound: UP at 84.31 pence from 84.18 pence
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