By Ritvik Carvalho
LONDON (Reuters) - A major global share index hit its lowest level in a month on Wednesday on fears the fallout from the U.S.-China trade war is spreading to the U.S. economy and could further hurt global growth.
The dollar (DXY) steadied, having earlier been knocked off its highest levels in more than two years following data on Tuesday that showed a measure of U.S. manufacturing activity falling to its lowest in more than 10 years.
The index that measures the greenback against a basket of peers was up 0.14%.
A slowdown in U.S. economic growth would remove one of the few remaining bright spots in the global economy and come just as Europe is seen as close to falling into recession.
MSCI's gauge of stocks across the globe (MIWD00000PUS), covering 49 markets, dipped 0.4% to its lowest since Sept. 4, after shedding 0.83% in the previous session.
European shares fell to their lowest in a month, with London stocks lagging the most. The pan-European STOXX 600 index (STOXX) was down 1.6%. (EU)
The FTSE 100 index (FTSE) slipped 2%, the largest drop across European regions, with the British pound also shedding 0.4% to the dollar.
Adding to investor anxieties, European companies looked set for their worst quarterly earnings in three years as revenue drops for the first time since early 2018, according to the latest Refinitiv data.
On Wall Street on Tuesday, the S&P 500 (SPX) lost 1.23% to hit four-week lows. Selling was triggered after the Institute for Supply Management's (ISM) index of factory activity, one of the most closely watched data on U.S. manufacturing, dropped to the lowest level since June 2009.
Markets had been expecting the index to rise back above the 50.0 mark denoting growth.
(GRAPHIC - S&P 500 vs. U.S. ISM PMI: https://fingfx.thomsonreuters.com/gfx/mkt/12/6849/6780/SP500.png)
"Historically, equity returns are worst when the ISM manufacturing drops from levels below the 50 threshold," Patrik Lang, head of equity research at Julius Baer.
"Uncertainty around the U.S.-China trade war is obviously the main reason for the weakness, with companies exposed to global trade increasingly putting off investment decisions."
The World Trade Organization said it would publish at 1400 GMT its decision on a U.S. request to take action against the European Union in a long-running aircraft subsidy dispute.
U.S. stocks futures were sharply lower. (ESc1) (NQc1) The VIX volatility index - also known as Wall Street's "fear gauge" (VIX) rose to its highest level since Sept. 3.
In Asia, MSCI's ex-Japan Asia-Pacific shares index (MIAPJ0000PUS) dropped 0.8%, with Australian shares (AXJO) falling 1.5% and South Korean shares shedding 1.95%. Japan's Nikkei (N225) slid 0.5%. China markets are closed for a one-week holiday.
Hong Kong's Hang Seng index (HSI) was down 0.3% after a market holiday the previous day. The index fell as much as 1.2% in early trade. On Tuesday, Hong Kong police shot a teenage protester, the first to be hit by live ammunition in almost four months of unrest in the Chinese-ruled city.
Adding to tensions in Asia, North Korea launched at least one more projectile on Wednesday, a day after it announced it will hold working-level talks with the United States at the weekend.
Elsewhere in currencies, the yen rose to 107.71 yen per dollar
The euro was flat at $1.09305 (EUR=).
Euro zone bond yields inched up after another speech from outgoing ECB chief Mario Draghi calling for fiscal stimulus to boost the region's sluggish economy. [GVD/EUR]
Gold rose to $1,486.46 per ounce
Oil prices were mixed as Brent crude extended losses partly in response to weaker stock markets, but U.S. crude rose slightly after industry data showed an unexpected fall in inventories in the United States.[O/R]
Brent crude (LCOc1) futures were last flat at $58.89 a barrel, after hitting a four-week low of $58.41 on Tuesday, while U.S. West Texas Intermediate (WTI) crude (CLc1) gained 0.41% to $53.84 per barrel after hitting a one-month low of $53.05.