London - A fall in copper to near four-year lows compounded increasing concern about China's economic slowdown on Wednesday to send a wave of unease through world financial markets.
Global stocks fell for a fourth day and copper, often regarded as a proxy for China's economic fortunes, hit its lowest level since 2010 after Shanghai futures had again fallen by their 5 percent daily limit.
In Europe, bourses from London to Lisbon tumbled and safe-haven German government bonds were in demand as the jitters added to the effects of the tug-of-war over Crimea, which has pitted Russia against Ukraine and the West.
“Markets are watching what is happening in copper with awe and trepidation,” said Societe Generale head of currency strategy Kit Juckes.
“It's partly ongoing concern about Chinese growth (or lack thereof) and nagging worries about the Ukraine. And partly it is just that the commodity bubble burst last year and not everyone noticed.”
Copper's fall follows China's first domestic bond default which has raised concerns about a possible unravelling of the many loan deals which have used the metal as collateral.
The metal has been in freefall for the last three days but the worries finally appeared to be catching up with other markets. Stocks across Asia - although ironically not in China - had seen sizeable falls, while the Australian dollar, Chilean peso and South African rand, currencies highly sensitive to commodities, all buckled.
The aussie was last down 0.5 percent at $0.8935 though traders said it could have fallen much more had it not been for demand created by a big A$7 billion bond sale.
Japan's Nikkei retreated 2.6 percent, continuing the see-saw pattern of the last couple of months, while Australian stocks shed 0.6 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.2 percent.
That mirrored a lacklustre performance on Wall Street, where soft data left investors no wiser on whether the US economy's troubles were weather-related or something more worrisome.
Futures prices pointed to another negative start when trading resumes later with little in the way of US data to drag attention away from China and copper.
Economists are concerned that recent moves by Beijing to stamp out speculation on its rising currency and overly easy lending may have overshot and will damage the world's second largest economy.
This is adding to broader strains on emerging markets as they try to cope with shifts in global attitudes while recovering economies such as the United States begin to phase out the cheap money churned out in recent years.
In Europe, the FTSEurofirst 300 index of top shares fell 1.2 percent with basic resources stocks dominated by mining firms which were down 1.6 percent.
Investors were hoping Chinese data on industrial output, retail sales and urban investment on Thursday might show where the economy is heading.
Reuters reported that China's central bank is prepared to loosen monetary policy if economic growth slows further by cutting the amount of cash that banks must keep as reserves.
This was a positive sign for markets, but also a possible indication of Beijing's growing nervousness.
Citing sources involved in internal policy discussions, the report said an easing would happen if growth slips below 7.5 percent, and would be on top of money market operations and currency intervention through state banks that traders say have already loosened monetary conditions.
At least one US scrap copper trader has suffered “large” losses after a buyer in China defaulted on a deal in the past week, one of the first signs that sinking prices and tightening credit are affecting the physical market.
With the tensions in Ukraine in the background, US government bonds began to gain after days of treading water.
The dollar eased a touch on the yen to 102.97 as the Japanese currency also benefited.
Gold, another favourite of risk adverse investors, climbed to a 5-1/2 month high of $1,362.25 an ounce, while crude prices extended their pullback with US oil down to $98.52, their lowest in a month and a half.
“The question in everybody's mind is - what is the biggest risk to oil? And it is China slowing down,” said Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin in Sydney.
“People have figured out that what happens in Ukraine doesn't matter to oil markets so much. It may impact other commodities, but not so much oil.” - Reuters