Fed's gloom triggers global selloff; stocks plunge most since '08

Stocks on Wall Street plummeted the most in three years before clawing back losses late in the session in a global selloff triggered by the Federal Reserve’s gloomy economic outlook.

The selloff started on Wednesday when the Fed moved to increase the share of longer-dated Treasury bonds within its portfolio by $US400 billion by June 2012, while selling shorter-term paper.

Investors quit stocks and other higher-risk assets in favour of bonds, sending 10-year Treasury yields to 1.7147% – levels not seen since the 1940s.

Commodities, including oil and gold, fell across the board, while the US dollar gained in currency markets.

The Fed said there were "significant downside risks" to the global economy and it also noted "strains" in global financial markets, a reference to Europe's sovereign-debt crisis.

The lack of a progress in resolving this has been compounded by weakness in Chinese manufacturing figures.

At the close (8am NZ time), the Dow Jones Industrial Average was down 391.01 points, or 3.5%, to 10,733.83, a day after shedding 284 points. Earlier, the Dow was down more than 520 points, making this the biggest two-day plunge since 2008.

The S&P 500 index lost 3.2% to 1129.56 and was earlier below its lowest close for the year. The technology-oriented Nasdaq Composite slumped 3.25% to 2455.67 after earlier being down nearly 5%.

Other markets: Europe, Asia slump
European stocks closed sharply lower. The Stoxx Europe 600 index ended down 4.6% at 214.89 – the biggest percentage fall since March 2009 when the index fell 5.3%.

The UK's FTSE 100 closed down 4.7% at 5041.61, hitting an intraday low of 5013.55. Some £364 billion was wiped off the index.

Germany's DAX declined 5.0% to 5164.21 and France's CAC-40 closed 5.3% lower at 2781.68.

Asian sharemarkets also dropped sharply, with China's Shanghai Composite losing 2.8%, after news that manufacturing activity in China contracted in September. Hong Kong's Hang Seng index slid 4.9%.

Japan's Nikkei Stock Average ended down 2.1%, Korea's Kospi dropped 2.9% and Australia's S&P/ASX 200 index shed 2.6%.

Hong Kong's Hang Seng Index dropped 4.9%, while the Shanghai Composite Index fell 2.8%. In afternoon trade, India's Sensex was down 4.1%.

Commodities: Oil, gold fall
Oil prices tumbled hard as traders rushed out of risk-based assets.

Light, sweet crude for November delivery in New York was down as much as $US6.26, or 7.2%, at its lowest point of the day, dipping below $US80 a barrel several times.

The price settled $US5.41, or 6.3%, lower at $US80.51 a barrel. Brent crude for November delivery settled down $US4.87, or 4.4%, at $US105.49 a barrel.

Gold fell to a four-week low as a widespread selloff hit many commodity markets.

The most actively traded gold contract, for December delivery, was down $US65.80, or 3.6%, to $US1742.30 an ounce in New York. September gold fell $US66.30, or 3.7%, to $US1739.20 an ounce, a six-week low.

Currencies: US dollar gains
The dollar gained further against most major rivals as investors dumped risky assets.

The euro slumped to its lowest level versus the dollar since February and was trading at $US1.3451 from $US1.3572 late on Wednesday.

The dollar was at ¥76.37 from ¥76.44 and the euro was lower at ¥102.73 from ¥103.77.

The UK pound bought $US1.5345 from $US1.5499, while the dollar fetched 0.9068 Swiss franc from 0.8999 franc.