ALARM bells rang across world markets yesterday as a 8.5 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

    European stocks opened more than 3 percent in the red after their Asian counterparts slumped to 3-year lows as a three month-long rout in Chinese equities threatened to get out of hand.

    Safe-haven government bonds and the yen and the euro rallied as widespread fears of a China-led global economic slowdown and currency war kicked in.

    “It is a China driven macro panic,” said Didier Duret, chief investment officer at ABN Amro. “Volatility will persist until we see better data there or strong policy action through forceful monetary easing.”

    With doubts now emerging about the likelihood of a U.S. interest rate rise this year, the dollar slid against other major currencies. It was last at 120.25 yen its lowest in three months.

    The Australian dollar fell to six-year lows and many emerging market currencies also plunged, whilst the frantic dash to safety pushed the euro to a 6.5-month high.

    “Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,” said Takako Masai, head of research at Shinsei Bank in Tokyo.

    Commodity markets took a fresh battering. Brent and U.S. crude oil futures hit 6.5-year lows as concerns about a global supply glut added to worries over potentially weaker demand.

    U.S. crude was down 3 percent at US$39.20 a barrel while Brent lost 2.4 percent to US$44.40 a barrel.

    Copper, seen as a barometer of global industrial demand, tumbled 2.5 percent, with three-month copper on the London Metal Exchange hitting a six-year low of US$4,920 a ton. Nickel slid 4.6 percent to its lowest since 2009 at US$9,730 a ton.

    “China could be forced to devalue the yuan even more, should its economy falter, and the equity markets are dealing with the prospect of a weaker yuan amplifying the negative impact from a sluggish Chinese economy,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo.

    There was further evidence that developed markets were becoming synchronized with the troubles. London’s FTSE which has a large number of global miners and oil firms, was down for its 10th straight day, its worst run since 2003.(SD-Agencies)