Hopes that the US stock market was back on track were dashed at the opening bell on Tuesday, when weak Chinese data knocked more than 300 points off the Dow Jones Industrial Average.
The Dow opened down 2 per cent after data from China showed that its manufacturing sector had shrunk at its fastest pace in three years. One indicator of the health of the manufacturing sector, the Purchasing Managers’ Index, also slipped further in August.
“The PMI was below 50, which is a psychologically important level and puts into real focus the fact that China is contracting,” said Joe Rundle, a senior sales trader at ETX Capital told Reuters.
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Declines in China’s services sector, which was thought to be stable, added to worries that there is much further to fall. Fears over China's slowing growth wiped more than $5 trillion (£3.2 trillion) off the value of global stock markets in August.
The S&P 500 was also down 1.2 per cent on Tuesday, marking a drastic 10 per cent fall since record highs in May.
September’s poor start is likely to weigh on the timing of a rise in interest rates in the US, despite hints from a senior Federal Reserve official that rates will rise this month.
The markets are unlikely to be comforted by Christine Lagarde, the head of the International Monetary Fund, who warned that global economic growth was likely to be weaker than expected.
The FTSE100 was also down 3 per cent on Tuesday. Jasper Lawler of CMC markets said that a slowdown in Europe's own manufacturing data had only added to negative sentiment.
