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Stock markets fell on Monday after China's factory output grew at the weakest pace in nearly six years in August, while worries over the impact of another round of sanctions on Russian projects added to headwinds for Moscow-listed companies and the oil market.
Europe's main markets fell as much as 0.4% before recovering some poise. That followed a 1% dive for Asian shares, with European oil and gas stocks - traditionally among the most exposed to signs of weakening demand from China - falling as much as 1.3%.
Brent crude oil slumped to a more than two-year low under $97 per barrel as the lacklustre data from the world's top energy consumer cast a shadow over the outlook for oil demand at a time of abundant supply.
"Economic growth in China is one of the key drivers of world growth and generally of oil demand," said Ric Spooner, chief market analyst at CMC Markets. "It seems likely that (oil) demand growth won't keep up with the growth in supply capacity."
The United States and European Union imposed fresh sanctions on Moscow last week, hampering exploration of Russia's huge Arctic and shale oil reserves and setting rules on tougher financing of existing Russian projects. Oil companies impacted include Gazprom
Rosneft shares inched up on Monday after the Russian government said it would create a multi-billion dollar fund to help companies - although the funding announced for it fell way short of the almost $40 billion Rosneft says it needs in aid.
The dollar, whose rise since early July is its longest winning streak since 1997, continued to gain and bank analysts said expectations that the US currency would continue to gain were likely to weigh on commodities.
At the same time, the boom in shale gas exploration in the United States has removed one of the big sources of tension from the global market.
"A strong dollar has an impact on commodity prices generally, but there is also the issue of shale gas in the US," said Jane Foley, an analyst.
"Clearly the US can't export shale gas but it means that some of their previous suppliers are looking for new markets. There is a lot of supply out there that would have historically gone into the US but is now going to other global markets."
JOCKS AWAY?
Sterling, which has recovered a foothold in the past few days, slipped following another round of polls that showed Thursday's vote on Scottish independence remains too close to call.
One-week implied volatility - the best measure of the scale of the risks to the pound seen by markets - remains at its highest in four years.
A vote by the Scots to leave the United Kingdom would have wide-ranging consequences and could drive sterling sharply lower, but the market pricing also encapsulates the risk of a snap back in the event of a vote for the status quo.
One poll over the weekend showed the "No" vote 8 points in front, while another showed the same lead for the Yes camp and two others a 51-49% and 53-47% split respectively in favour of sticking with the union.
"While likely to be highly volatile, sterling should hold above last week's lows ahead of, and then rise following, the confirmation of a 'No' outcome from Thursday's Scottish referendum," Credit Agricole analysts said in a note.
The bearish Chinese data has added to worries about a 40% slide in iron ore prices this year and further soured sentiment for commodity currencies.
The Australian dollar fell below 90 US cents for the first time since March, down half a percent on the day and extending a decline from 94 cents early this month. Australia's S&P/ASX 200 index shed 0.8%, South Korea's KOSPI dipped 0.3% and Hong Kong's Hang Seng fell 0.6%.
There has been strong demand for the US dollar as investors positioned for a slightly more hawkish shift from the Federal Reserve this week at its Sept. 16-17 policy meeting.
This has driven US Treasury yields higher, with the 10-year yield last week scoring its biggest rise in over a year.
"The key question surrounding this week's policy event is whether a widely expected change in FOMC forward guidance is sufficient to refuel USD buying," Credit Agricole analysts wrote in a report.
