Investors sold off stocks and commodities worldwide on Tuesday, unnerved by fears that major central banks are cooling in their commitment to pumping money into the economy to spur recovery.
But United States stocks were well off their lows by midday as investors took earlier dips in the market as a chance to buy.
Reuters reported that the decline was initially triggered in Tokyo when the Bank of Japan elected not to take any fresh measures to tackle rising government bond yields that threaten to thwart its $1.4tn stimulus program.
That news sparked a further reversal of bets on stocks, emerging-market debt and other assets bolstered by accommodative monetary policies. The yen soared, sending the dollar and euro down about 2 percent earlier.
The prospect of reduced stimulus has halted a rally that took US indexes to all-time highs and the MSCI All-Country World Index to a five-year peak. The MSCI index was down by 0.4 per cent, reversing some of the day’s losses.
“Central banks have pushed many assets beyond the fundamentals and created a great deal of volatility,” said Michael O’Rourke, chief market strategist at Jones Trading in Greenwich, Connecticut. “Nobody really has an idea where the unwinding stops.”
The selling spread across emerging shares as well, sending MSCI’s benchmark index to a nine-month low and extending losses caused by political tensions in Turkey and worries about China’s slowing economy. The index was last down by 1.6 per cent.
European shares fell to six-weeks lows. The pan-European FTSEurofirst 300 index provisionally closed down by 1.2 per cent at 1,179.40.
The Dow Jones industrial average dropped by 7.52 points, or 0.05 per cent, to 15,231.07. The Standard & Poor’s 500 Index lost 4.49 points, or 0.27 per cent, to 1,638.32. The Nasdaq Composite Index declined 11.43 points, or 0.33 per cent, to 3,462.33.
The dollar dropped by 1.7 per cent to 97.11 yen, having hit a session low of 96.47 yen, according to Reuters data. The euro fell by 1.6 per cent to 128.70 yen.
The BOJ held off on new measures on Tuesday, arguing that bond markets had stabilised. While BOJ Governor Haruhiko Kuroda did subsequently try to reassure the markets the central bank would consider fresh steps if yields spiked again in the future, the decision rattled many foreign investors.