Market mayhem: UPDATED Shares, oil slump; bonds, gold rise

UPDATED: NZ stocks fall along with global markets, oil still plummeting

Stocks slump
Dow sheds 249 points
UK's FTSE falls 3.5% 
Germany’s DAX drops 2%
Shanghai Composite Index falls 1%
Australia’s S&P ASX 200 declines 1.3%

Flight to safety
Gold up 1.3% at $US1106.20
Oil down 6.0% to $US26.76/bbl
US dollar falls 0.7% against the yen at ¥116.6420
10-year US Treasury yield falls to 1.99%

Investors have dumped stocks around the world and rushed into the safety of US government bonds, gold and the Japanese yen.

On Wall Street, the Dow Jones Industrial Average shed as much as 546 points, or 3.4%, to 15,470 in midday trading before bouncing back. 

It briefly clawed back all its losses in late afternoon trading before slumping again to close at 15,766.74, a drop of 249.28 points or 1.6%.

At midday, the  S&P 500 had declined 3.6% and the Nasdaq Composite 3.5%. At the close they were off 0.6% and 0.4% respectively.

US Treasury (bond) prices jumped, pushing the yield on the 10-year note down to 1.993% from 2.038% on Tuesday.

A slump in oil prices dragged shares of energy companies sharply lower. US crude oil dropped 6.0% to $US26.76 a barrel, bringing its 2016 loss to nearly 30%.

Brent crude was down 1.95% at %US28.20.

The months-long drop in oil prices and renewed uncertainty about the magnitude of the slowdown in China have dragged stocks sharply lower this year.

"It is the third year in a row we have more supply than demand," International Energy Agency executive director Fatih Birol told Bloomberg.

"Prices are still under pressure. I don't see any reason why there will be a surprise increase in the price this year."

The Dow has tumbled more than 10% so far in 2016, putting it into "correction" territory.

"What the market is focused on is Chinese hard landing fear, oil prices and the strength in the dollar," New York-based Federated Investors chief equity-market strategist Phil Orlando told Bloomberg.

"Domestic economic fundamentals don't matter, and that's the point of this correction. That's when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support," he says.

Other major markets fall
In Europe, the Stoxx 600 fell 3.2% as all major markets fell. In Asia, Japan was down 3.7% as it enters a bear market – a 20% drop from a recent high –  while shares in Hong Kong fell below 19,000 in the Hang Seng Index for the first time in three years.

"The damage being done in energy is spreading," Brian Fenske, head of sales trading at ITG in New York, told Reuters. "Just getting up every morning and seeing the S&P futures down 1-2% has a near-term psychological impact and puts some investors into risk-off mode."

The slump in energy costs was reflected in the latest US data.

A Labor Department report showed US consumer prices unexpectedly dropped in December, with the consumer price index falling 0.1%. Stripping out food and energy costs, the so-called core index rose a lower-than-expected 0.1%.

Even so, the index rose 0.7% in the 12 months to December, the largest advance in a year.

US Federal Reserve policy makers might think twice about raising interest rates. Their next two-day meeting begins on Tuesday.

"The broad based nature of the decline in inflation will hardly be encouraging news at the Fed, and if anything it is likely to temper their confidence in the outlook for inflation," New York-based TD Securities deputy chief economist Millan Mulraine told Reuters.

Updated for Wall Street close (10am NZ time)

- Additional reporting from Businessdesk