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A weaker-than-expected report on US factory activity hurt global equity markets and the dollar on Monday and left investors scurrying for traditional safe-haven assets such the US and German government bonds and the Japanese yen.
It had been another torrid Asian session as traders returning from Lunar New Year holidays got up to pace with the sell-off and European markets looked in no mood to deviate from the downward course.
New falls on all the major bourses saw the pan-European FTSEurofirst start down 0.5%, although it was looking almost rosy compared with MSCI's main emerging market index.
It was down another 1.4% having fallen 12% over the last two months, while MSCI's 45 country all world index dropped to its lowest since early October.
"It does look as if developed market equities are playing catch up with emerging markets," said Societe Generale strategist Kit Juckes.
"The dollar has somewhat run out of steam and I suspect the focus today may well be on yen strength as well as how much further the equity market falls can go."
German government bonds, considered to be one of Europe's most secure investments, saw prices hit a 6-month high while most of the rest of the region lost ground.
Despite a sharp jump in Australia's dollar after its central bank appeared to shut the door on further rate cuts, the main focus of the currency market remained the greenback's fading influence over the yen.
Two factors were at play. First, the fall in US bond yields due to the weak data had knocked the dollar. But also a fresh 4% on Tokyo's Nikkei stock market overnight had pushed up the yen. The Nikkei often appears to be on a see-saw with the yen, as one goes up the other goes down.
The US dollar was last up 0.2% at 101.16 yen staying above Monday's low of 100.77 yen, its lowest level against the Japanese currency since November 21. The euro was at $1.3509, held back by talk the ECB could ease policy this week.
10% CORRECTION?
The stock market sell-off saw the VIX, a favoured gauge of market nervousness, jump to its highest since June. It also boosted safe-haven appeal of gold, with spot gold steady on the day at $1,258.84 an ounce, after gaining 1.1% on Monday.
But three-month copper on the London Metal Exchange, a metal highly attuned to global growth, edged down to $7,020 on track for its 10th straight losing session, it longest run of falls in 37 years.
The Nikkei's latest 4% dive cemented its position as 2014's worst performing major market. It has shed 14% of last year's 50% boom. The US benchmark S&P 500 and FTSEurofirst 300 are down 5.8 and 3.3% respectively.
"With the main European indices down around 7% (since peaks), chatter on trading desk is about whether we are in for a '10%' correction," Jonathan Sudaria, a dealer at Capital Spreads in London, said in emailed comments.
"The bears have a seemingly easy target within reach and the remaining bulls will want to get out of the way."
Among other perceived safe assets, the yield on benchmark 10-year US Treasury notes stood at 2.604 in early European trading, after falling as low as 2.582%, its lowest since November 1.
The dollar's overnight weakness also provided some relief to emerging market currencies. Turkey's lira, Russia's rouble, Hungary's forint and the South African rand all edged higher.
"Experienced emerging market investors would be looking at this sell down with great interest, looking to pick up quality names on the dip, but they are still in the minority for now," said Erwin Sanft, Standard Chartered's Hong Kong-based China equity strategist.
