Asian and European markets suffered another rout Wednesday with the previous day's China-fuelled rally wiped out by ongoing worries about plunging oil prices and the state of the world economy.
The International Monetary Fund's decision to downgrade its global growth forecast for this year and issue a warning about the outlook added to the sense of doom across trading floors.
News (Other OTC: NWSAL - news) from Beijing that the world's number two economy -- a key driver of worldwide growth -- had expanded within forecasts provided a much-needed lift Tuesday.
While the figures represented the slowest rate in 25 years, they did fuel hope that China's leaders would embark on a new round of stimulus, sending Asian and European markets sailing.
However, the joy gave way to the reality that oil prices were at more than 12-year lows and a supply glut was likely to continue for some time.
The mood was darkened by the International Energy Agency's warning that the market "could drown" in oversupply as key producer Iran -- freed from years of global sanctions -- resumes exports of the commodity.
On Wednesday US benchmark West Texas Intermediate fell to fresh lows of below $28, days after Brent also slipped below that level. In afternoon trade WTI was down 3.3 percent at $27.52 and Brent was off 1.9 percent at $28.22.
Crude has lost three quarters of its value since mid-2014, hit by a perfect storm of a supply glut, weak demand, a slowing global economy and a strong dollar.
Regional stock markets fell in line with the depressed oil price and on worries about China.
Hong Kong plunged 3.8 percent to its lowest levels since early 2012, with an outflow of capital from the city's market putting pressure on the local dollar's 32-year peg to the greenback.
The Hong Kong dollar is at an almost nine-year low as the city's once-alluring access to Chinese assets looks less attractive to investors.
- 'Everything is falling' -
"The Hong Kong dollar is a victim of all the risk aversion across global markets given what?s happening with China," Tommy Ong, managing director for treasury and markets at DBS Hong Kong, told Bloomberg News.
But he added: "I trust that the Hong Kong peg will stay in place because there are no better alternatives given the volatility we?ve seen with the yuan."
Tokyo lost 3.7 percent to end at a close to a 15-month low and Sydney shed 1.3 percent, while Seoul dived 2.3 percent.
Shanghai swung in and out of positive territory before ending the day one percent lower -- it has lost more than 15 percent this year already. With Chinese New Year celebrations approaching, China's central bank pledged $91 billion in funding support for lenders to provide sufficient liquidity as demand for cash surges.
In early European trade Paris and Frankfurt each tumbled 2.4 percent and London lost two percent.
The losses were characteristic of the start to a year that has seen world markets slump, wiping trillions off valuations.
"Everything is falling," Tsutomu Yamada, a market analyst at kabu.com Securities, told Bloomberg News.
"It (Other OTC: ITGL - news) 's difficult for the market to rebound unless oil or something else truly hits bottom. Whether it's oil, the dollar-yen, US shares, Hong Kong or Shanghai shares -- something has to rebound."
The IMF cut its growth outlook for the global economy to 3.4 percent from 3.6 percent previously, saying there were substantial risks in major emerging market economies.
The stronger US dollar, collapsed oil prices and political turmoil could all wreak further havoc and warned of danger if China does not manage its slowdown well and reforms its economy.
Emerging market currencies slipped as investors shifted out of high-yielding, riskier, assets. The Australian dollar fell 0.8 percent against the greenback, while the Indonesian rupiah shed 0.7 percent and the oil-dependent Malaysian ringgit shed 0.3 percent. South Korea's won was 0.7 percent off.
New Zealand's dollar lost 0.5 percent as the country's inflation came in at the weakest level in 16 years, fuelling speculation authorities could cut interest rates from already record lows.
- Key figures around 0830 GMT -
Tokyo - Nikkei 225: DOWN 3.7 percent at 16,416.19 (close)
Shanghai - Composite: DOWN 1.0 percent at 2,976.69 (close)
Hong Kong - Hang Seng: DOWN 3.8 percent at 18,886.30 (close)
London - FTSE 100: DOWN 2.0 percent at 5,760.91
Euro/dollar: UP at $1.0952 from $1.0912 Tuesday
Dollar/yen: DOWN at 116.64 yen from 117.59 yen
New York - Dow: UP 0.2 percent at 16,016.02 (close)