World stock markets plunged yesterday, as a near nine per cent dive in China shares and a sharp drop in the dollar and major commodities sent investors rushing for the exit.

The Dow Jones Industrial Average dropped more than 1,000 points as Wall Street opened, and the benchmark Standard & Poor’s 500 index slid more than 2.5 per cent, a drop that puts it nearly 10 per cent below its record high.

A key measure of US equity volatility, the CBOE Volatility Index, or VIX, shot above the 50 mark for the first time since 2009, and the New York Stock Exchange was forced to implement special price-indication measures to allow for a more fluid start to trading.

European stocks were more than 4.7 per cent in the red after Asian shares slumped to three-year lows as a three month-long rout in Chinese equities threatened to get out of hand.

Oil plunged another four per cent, while safe-haven government US and German 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.”

A panel displaying the closing Hang Seng Index is shown outside a bank in Hong Kong, China. The latest financial “earthquake” has created shock waves which affected world stocks and the dollar. Photo: Reuters

Many traders had hoped that such support measures, which could include an interest rate cut, would have come from Beijing over the weekend after its main stocks markets slumped 11 per cent last week.

Volatility will persist until we see better data there or strong policy action

With serious doubts also now emerging about the likelihood of a US interest rate rise this year, the dollar slid against other major currencies. The Australian dollar fell to six-year lows and many emerging market currencies also plunged, while the frantic dash to safety pushed the euro to a 6-1/2-month high above $1.15. The euro briefly shot to as high as $1.17

“Things are starting to 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. As commodity markets took a fresh battering, Brent and US crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from the normally resource-hungry China.

US crude was last down 3.3 per cent at about $39 a barrel while Brent dropped to $43.60 barrel to take it under January’s lows for the first time. Copper, seen as a barometer of global industrial demand, tumbled 2.5 per cent, with three-month copper on the London Metal Exchange also hitting a six-year low of $4,920 a tonne. Nickel slid six per cent to its lowest since 2009 too at $9,570 a tonne.

The near nine per cent slump in Chinese stocks was their worst performance since the depths of the global financial crisis in 2007 and wiped out what was left of the 2015 gains, which in June has been more than 50 per cent.