LONDON (AFP) - A fierce sell-off gripped world markets on Thursday after a warning by US Federal Reserve boss Janet Yellen over the global economy, while oil fell close to 13-year lows.
New York's Dow Jones Industrial Average followed European exchanges lower, having already dropped the previous session as Yellen also played down the chances of another US interest rate hike any time soon.
The news sparked a renewed sell-off in Asia on Thursday, with Hong Kong stocks tumbling as investors played catch-up after a three-day break for the Chinese New Year.
The intense selling spilled over into Europe, with London falling 2.4 per cent, Frankfurt 2.9 per cent, Paris 4.1 per cent and Milan 5.6 per cent.
"The Fed chair inspired a wave of panic late in the American session that has fed through Asia and turned up on Europe's doorstep," Spreadex analyst Connor Campbell told AFP.
He added that "a lack of sufficient dovishness paired with gloomy comments on the global outlook" had reignited investors' recession fears.
In further testimony on Thursday, Yellen downplayed the chance of a contraction in the US economy, saying "it's premature to make a judgment" on the impact of market turbulence.
US oil prices dipped close to a near 13-year low underneath US$27 a barrel, plagued also by chronic oversupply.
Sentiment soured further as Australian mining giant Rio Tinto posted an annual net loss of US$866 million (S$1.2 billion) and blamed the "highly challenging environment" as commodity prices plunge and China's economic slowdown bites.
The dire result compared with a US$6.53 billion net profit in 2014.
The company also dumped its progressive dividend policy, in which shareholders are given gradually higher payouts.
That sent Rio Tinto's share price falling by 3.4 per cent.
Swiss-based miner Glencore was also high on the fallers board in London after posting a 6 per cent drop in fourth-quarter copper output, falling 6.2 per cent.
Back in Asia, Hong Kong stocks slumped almost 4 per cent to their lowest levels since June 2012.
On the first trading day of the Year of the Monkey, Hong Kong also slid on concerns about riots in the city this week that saw police battle street sellers, injuring several people. Analysts said the clashes could harm tourism.
There were sharp losses on other Asian markets, with Seoul closing almost 3 per cent down and Singapore off 0.8 per cent, while Wellington also sank. However, Sydney rebounded on bargain-buying.
Banking stocks also had another bad day, following wild swings since the start of the week, as investors increasingly worry that the low or even negative interest rates central banks have brought in to prop up economic activity may be damaging lenders.
"Negative interest rates have become a real sore point because of the way they impair banks' ability to do business," said CMC Markets UK analyst Jasper Lawler.
"The Swedish Riksbank's decision to cut interest rates to -0.5 per cent while French bank Societe Generale missed profit estimates because of litigation provisions hit the market's concern," he added.
Societe Generale, France's second-largest bank, warned it would fall short of its earnings targets this year, sending its shares nearly 13 per cent lower on the Paris exchange, as investors ignored a hefty rise in profits for 2015.
Worries about financials prompted the head of the Eurogroup, Jeroen Dijsselbloem, play down the concerns, saying that the EU's single currency area and its banks were stronger than a few years ago.
Shares in Deutsche Bank, which jumped more than 16 per cent at one point on Wednesday on rumours it may launch a bond buyback to assuage concerns about its financial strength, fell 6.1 per cent on Thursday.
Banks were also among the top losers in London, with Barclays plunging 7 per cent, Standard Chartered 5.1 per cent and HSBC 4.8 per cent.
Tension was also evident on euro zone government bond markets, as investors sought out safe-haven German 10-year bonds, pushing down the rate of return to 0.58 per cent.
Meanwhile the rates of return jumped on Greek and Portuguese debt. London - FTSE 100: DOWN 2.4 per cent at 5,536.97 points (close) Frankfurt - DAX 30: DOWN 2.9 per cent at 8,752.87 (close) Paris - CAC 40: DOWN 4.1 per cent at 3,896.71 (close) Milan - FTSE MIB: DOWN 5.6 per cent at 15,773 (close) EURO STOXX 50: DOWN 3.9 per cent at 2,680.35 New York - Dow: DOWN 2 per cent at 15,600.33 New York - S&P 500: DOWN 1.7 per cent at 1,821.32 New York - Nasdaq: DOWN 1.2 per cent at 4,232.39 Hong Kong - Hang Seng: DOWN 3.9 per cent at 18,545.80 (close) Tokyo - Nikkei 225: Closed for a public holiday Euro/dollar: UP at US$1.1362 from US$1.1286 on Wednesday Dollar/yen: DOWN at 111.75 yen from 113.40 yen