Stocks suffered their biggest losses in years and the dollar slumped yesterday after the latest inflation data from the United States and China fanned worries about a global slowdown, driving investors into safe-haven government debt.

The S&P 500 fell nearly three per cent, putting it on track for its worst day in nearly three years, while European equities finished 3.2 per cent lower and marked their biggest one-day slide in almost four years.

The selloff wiped out all of the year's gains in major US and European indexes, and a key gauge of Wall Street anxiety hit a three-year high as investors rushed to protect against further losses in markets.

Popular trades that have worked for most of the year, including heavy bets on the dollar, more gains in stocks, and on an eventual rise in yields, are unraveling.

“Right now, the risk play is off the table until stability re-enters, whether it's through better economic data, better grip and understanding of the Ebola concerns,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

A fall in China's inflation rate to a five-year low and a decline in US producer prices for the first time in over a year were worrisome signs to investors already skittish about the path of the global economy and caused them to reassess their views on when the US Federal Reserve might hike interest rates. The latest news on the spread of Ebola added to a climate of fear, with another Texas healthcare worker testing positive for the deadly virus, Texas officials said yesterday. An MSCI gauge of stocks in major markets was down 2.2 per cent, its largest daily decline since June 2013. The CBOE Volatility Index rose to 29.54, after earlier hitting 31.06, the highest level since May 2011. Trading volume in the options market was projected to be its busiest on the year, according to Trade Alert data.

The Dow Jones industrial average fell 456.89 points, or 2.8 per cent, to 15,858.3, the S&P 500 lost 57.04 points, or 3.04 per cent, to 1,820.66, and the Nasdaq Composite dropped 109.60 points, or 2.59 per cent, to 4,117.57.

Worries about Ebola slammed airline stocks. The US Centers for Disease Control and Prevention said the second nurse who was diagnosed with the virus had been on a plane the day prior.

Flight from risk resulted in a massive rally in US Treasuries, pushing the 10-year note's yield as low as 1.865 per cent, its lowest level since May 2013. Rate futures now show the market does not expect the Fed to raise rates until early 2016, a dramatic change from a few weeks ago.

The US benchmark yield ticked above two per cent in afternoon trading and 10-year Bund yields hit a record low of 0.719 per cent before edg-ing up to 0.757 per cent.

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