Global growth worries slam stocks, oil, emerging markets

NEW YORK (Reuters) - An index of global equities fell to a seven-month low and oil hit a two-year low on Friday, continuing a string of weakness built on worries about weak worldwide economic growth.

Investors have scrambled to reduce big bets in stocks and other risky assets after benefiting from a rally in major world equity markets that has only seen brief interruptions in the past three years.

Assets tied to expectations for improved growth have been hit by a recent raft of weak indicators from Europe at a time when other big economies, including China, Japan and Brazil, face their own hardships and as the U.S. Federal Reserve is expected to reduce monetary accommodation in coming months.

Most major markets saw 1 percent declines Friday, and an early attempt by U.S. markets to rally was quickly met with more selling, though losses in the U.S. were concentrated in the tech-heavy Nasdaq. Friday's selling was not linked to a particular catalyst, but a continuation of the growing concern about valuations amid questionable global demand.

"In a vacuum of policy response, investors are selling first and asking questions later," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management, which has about $924 billion in assets under management.

"It smells like there is a high degree of involvement from systematic traders, rather than fundamental traders. The magnitude of the move has been disproportionate to the change in the fundamentals."

The Dow Jones industrial average <.DJI> rose 5.01 points, or 0.03 percent, to 16,664.26, the S&P 500 <.SPX> lost 7.5 points, or 0.39 percent, to 1,920.71 and the Nasdaq Composite <.IXIC> dropped 55.02 points, or 1.26 percent, to 4,323.32.

In a sign of increased volatility, the CBOE Volatility Index <.VIX>, or VIX, the market's favored gauge of Wall Street anxiety, touched a high of 22.06 on Friday, its highest intraday level since December 2012, as more investors paid up for protection against further declines.

Concerns about global growth hit oil prices hard. Brent crude oil fell 0.9 percent to $89.26, after touching its lowest level since December 2010 at $88.11. U.S. November crude was down 0.8 percent at $85.09.

"It's panic mode. Panic and capitulation," said Carsten Fritsch, commodities analyst at Commerzbank. "We are now in uncharted territory, so anything could happen."

The risk aversion has boosted buying in safe-haven government debt. Lipper data shows U.S.-based taxable bond funds attracted $12.7 billion in inflows for the week ended Wednesday, a one-week record, while U.S. equity funds saw $6.7 billion in outflows, with most coming from exchange-traded funds.

The yield on the U.S. 10-year Treasury note fell to 2.307 percent on Friday, the lowest since June. The 30-year Treasury bond was up 4/32 in price to yield 2.3124 percent, the lowest since June 2013.

The MSCI all-country world index <.MIWD00000PUS> was down 1.2 percent after hitting its lowest level since March, while the pan-European FTSEurofirst 300 <.FTEU3> index fell more than 1 percent. The MSCI Emerging Markets Index was also down, dropping 1.5 percent.

The U.S. Federal Reserve is set to wind down later this month the asset purchase program that has boosted markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for it.

A string of dismal data from Germany and other large euro zone economies in recent weeks has fed anxiety over a possible recession in the region, while the jury is still out on the European Central Bank's proposed policy response.

Some investors have been speculating that the ECB will be forced to launch a sovereign bond-buying program, styled on the Fed's quantitative easing (QE).

China's shares ended down on Friday as investors remained cautious ahead of September economic data due next week.

The dollar index <.DXY>, which tracks the greenback against six major currencies, was up 0.35 percent at 85.830. Against the euro , the dollar was up 0.45 percent at $1.2633. The dollar traded flat against the yen at 107.84.

Though it was still trading near four-year highs, the dollar was on track to end a record-long rally with its first weekly fall in three months. [FRX/]

Euro zone bond yields bounced off record lows after top Federal Reserve officials hinted at an interest rate rise in the middle of next year, reversing some bets for a longer period of near-zero rates. [GVD/EUR]

(Editing by Meredith Mazzilli)

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