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European stocks and major commodity prices fell hard on Monday as concerns over China dominated financial markets in the wake of the biggest drop in Shanghai shares in eight years.
The dollar was weak ahead of the week's main set piece - Wednesday's Federal Reserve policy decision and statement - with a better than expected survey of German business sentiment pushing the euro above $1.11 for the first time in a fortnight.
But it was the stunning 8.5% fall in Shanghai that drove most of the moves early in the European day, with share indices in Frankfurt, London and Paris all sinking by more than 1%.
Traders and investors said that was all rooted in broader concerns over global growth mid-way through the corporate results reason and following a poor economic reading out of China late last week.
"This really has its roots in nervousness that began in the US at the end of last week," said Andy Sullivan, a portfolio manager with Swiss investment firm GL Financial Group.
"Shanghai is an artificial market at the moment reliant on government support, and they have thrown the kitchen sink at it in recent weeks. The selling just ratcheted up steadily this morning."
The CSI300 index of the largest listed companies in Shanghai and China's other major market, Shenzhen, ended 8.5% lower. Japan's Nikkei slipped more than 1%, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.6%.
Both copper, for which Chinese demand is an important driver, and the broader Thomson Reuters CRB commodities index hit their lowest in six years. Copper futures were down another 0.5% on Monday.
FED UP?
Despite the still patchy economic news, many analysts still expect the US central bank to raise interest rates in September.
Fed chief Janet Yellen drove the dollar higher earlier this month by saying a move this year was on the cards, but she has gone no further than that.
"We expect Fed voters to pull the trigger in September, but for the path to interest rate normalisation to be a long one given the global risk profile," said analysts at Australia and New Zealand Banking Group in a note to clients.
Expectations of a hike have slowly pushed up US Treasury yields and widened the dollar's premium over the euro. But the euro has also tended to rise when investors get more concerned about global growth and rein in riskier bets, as they were doing on Monday.
After the upbeat Ifo survey of German business sentiment, the common currency was up 1.1% $1.1101 3 full cents above this month's lows around $1.0810.
Brent crude fell 30 cents to $54.32 a barrel, touching its lowest in almost four months. US crude was off 21 cents at $47.93.
($1 = 7.7504 Hong Kong dollars)
(Additional reporting by Samuel Shen in SHANGHAI; Editing by Hugh Lawson)
