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Signs China's economic slowdown is deepening and weak growth in Europe and the US reported on Friday further damaged the outlook for the global economy, sending stocks and commodity prices reeling.
China's 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 economic 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 33 per cent fall in its stock markets since mid-year.
"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.
The downdraft from China is particularly rattling economies of its trade-reliant Asian neighbours.
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 fast economic growth, Chinese authorities have had limited success in shoring up activity this year despite four interest rates cuts since November.
Last week's shock 2 per cent devaluation in the yuan and a slump in Chinese shares over the summer have unnerved investors further.
The yuan has slid nearly 3 per cent since its August 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 growth target of 7 per cent this year if it doesn't ratchet up policy support. China's factory output, retail sales and investment all disappointed in July.
"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.
Stock markets around the world tumbled towards their worst week of the year on Friday as the weak Chinese data sent investors scurrying to safe-haven assets.
A relatively upbeat euro zone survey, one of the bloc's earliest monthly economic indicators, suggested the European Central Bank's massive bond-buying programme and a weaker euro may be finally having an impact on activity.
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.
Growth in the US manufacturing sector slowed unexpectedly to its weakest pace in almost two years in August, according to Markit. The preliminary US Manufacturing PMI fell to 52.9 in August, its lowest since October 2013, from a final July reading of 53.8. Economists polled by Reuters forecast an August reading of 54.0.
Job creation also slowed, with the index at 52.2, its weakest since July 2014, down from 53.8 in July.
"August's survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September," said Tim Moore, senior economist at Markit.
"According to survey respondents, the strong dollar continued to put pressure on export sales and competitiveness, while heightened global economic uncertainty appeared to have dampened client spending both at home and abroad." Most analysts still expect the US Federal Reserve to raise interest rates this year, possibly as soon as September, though minutes from the US Federal Reserve's last meeting in July showed policymakers discussed China, Greece's debt crisis and the weak state of the global economy.
