Signs of deepening economic weakness around the world yesterday dragged stocks lower, with the Dow close to its worst decline in January since 1960, and investors fled to the safety of gold and government debt.

Gold futures jumped nearly two per cent on flight-to-quality buying and record investment demand, while the price of longer-dated US and euro zone government bonds rose, bolstered by demand for safe-havens in financial markets.

A plunge in euro zone inflation, a record fall in Japanese industrial production and the fastest shrinking of the US economy in nearly 27 years heightened fears that the global downturn could be worst than many investors had feared.

World stocks, as measured by MSCI's all-country index fell 1.6 per cent yesterday and was poised to close the month down more eight per cent.

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