Signs China's slowdown is getting worse and weak growth in Europe have further damaged the outlook for the global economy, sending stocks and commodity prices reeling on Friday.
China's vast factory sector shrank at its fastest rate in almost 6-1/2-years in August, a private survey showed, pushing investors who fear China's sagging economy will translate into slower global growth to take refuge in gold and bonds.
World markets had already been on edge after China's surprise devaluation of the yuan last week and a near-collapse in its stock markets in early summer.
"Uncertainty about China growth is now the main swing factor in markets," said Tim Condon, an economist at ING Group in Singapore.
"Today's data reinforced the doubts about global growth."
The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July's final 47.8.
It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.
Euro zone business growth unexpectedly accelerated this month but remained tepid, according to surveys out of Europe, while a similar index due later from the United States is expected to show only a modest pick up in factory growth.
World stock markets tumbled towards their worst week of the year and commodities got another kicking, as the data sent investors scurrying to the safety of bonds and gold.
Analysts still expect the U.S. central bank to raise interest rates this year, possibly as soon as next month, though minutes from the U.S. Federal Reserve's last meeting in July showed policymakers discussed China, Greece's debt crisis and the weak state of the global economy.
The downdraft from China is particularly rattling economies of its trade-reliant Asian neighbors.
South Korea, which counts China as its biggest trading partner, said on Friday its exports slumped and Taiwan reported on Thursday its export orders in July fell more than expected.
And while a similar factory survey in Japan pointed to a pick-up there due to stronger domestic demand, policymakers in Tokyo are keenly aware of the dangers if China slows further.
Following three decades of blistering double-digit economic growth, Chinese authorities have had limited success in shoring up activity this year despite four interest rates cuts since November.
Worse, last week's shock 2 percent devaluation in the yuan and a near-collapse in Chinese shares over the summer that was countered by a massive stock market rescue do not appear to have calmed investor jitters.
The yuan has slid nearly 3 percent since its Aug. 11 devaluation, a fall some analysts say is too modest to boost Chinese exports, but notable enough to raise fears of competitive currency devaluations between governments.
The speed with which China's economy is losing steam has led to analysts warning the government may struggle to meet its official growth target of 7 percent this year if it doesn't ratchet up policy support. China's factory output, retail sales and investment all disappointed in July.
Some economists say China's present growth levels could already be closer to half of the 7 percent official figure reported for the second quarter.
"While we do not have enough information to assess all the details of official releases, we share the view that real GDP growth probably slowed more than reported in recent quarters," said Wei Yao at Societe Generale.
A relatively upbeat euro zone survey, one of the earliest monthly economic indicators, suggests the European Central Bank's massive bond-buying program and a weaker euro may be finally having an impact on growth.
However, signs businesses are cutting prices at a faster rate will be disappointing for the ECB which has been battling to bring inflation - at just 0.2 percent in July - anywhere near its two percent target ceiling.
Markit's Composite Flash PMI, rose to 54.1 this month from July's 53.9, confounding expectations in a Reuters poll for a modest dip to 53.8.
The headline index has been above 50 since mid-2013 and Markit said the PMI suggested third quarter GDP growth of 0.4 percent, matching the prediction in a Reuters poll last week.
"It points to weak growth that will do little to erode the spare capacity in the region," said Jennifer McKeown at Capital Economics.
"We still see euro zone growth slowing in the coming months as earlier boosts from falling inflation and the euro's depreciation fade, particularly if renewed uncertainty surrounding the Greek election damages confidence."
Adding to uncertainty for investors following a brief period of relief after Athens avoided default and signed a third bailout to stay in the euro zone, Greek Prime Minister Alexis Tsipras resigned on Thursday.
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