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[HONG KONG] A plunge in a gauge of Chinese factory activity stoked fresh fears about the world's number two economy and the global outlook Wednesday, sending Asian markets tumbling after a heavy sell-off in New York and Europe.
Emerging market currencies - already under pressure from an expected US interest rate hike and weak growth - also took a battering as investors rushed into lower-yielding, or safer, assets such as the yen while oil prices eased.
The losses extended a general downward spiral across the world as dealers fret over the state of the global economy, with a US recovery offset by China posting growth at 25-year lows, and Japan and the eurozone also struggling.
On Wednesday China's closely watched Purchasing Managers' Index (PMI) of manufacturing activity for September came in at a six-and-a-half-year low and showed the sector contracted further.
The preliminary reading released by financial publisher Caixin came in at 47.0, down from August and missing expectations of 47.5. A result below 50 indicates shrinkage and anything above points to growth.
"The decline indicates the nation's manufacturing industry has reached a crucial stage in the structural transformation process," He Fan, chief economist at Caixin Insight Group said in a statement accompanying the figures.
He blamed the weakness mainly on sluggish external demand for Chinese goods and lower export prices.
The figures come a day after the Asian Development Bank (ABD) said it had lowered its growth expectations for Asia because of the sharp growth slowdown in China, a key driver of global trade.
"It's a confirmation of fears that were existing in the market already that China is in fact doing worse than we had been led to believe and there's a lot of uncertainty about where that economy really is," Emma Lawson, senior currency strategist at National Australia Bank in Sydney, told Bloomberg News.
Among Asian stock markets Shanghai sank 0.88 per cent, Hong Kong was 1.90 per cent lower and Sydney - where a number of firms with strong China links are listed - shed 1.70 per cent.
Seoul, Taipei and Singapore were also each down more than one per cent.
FLIGHT TO SAFETY
The safe haven yen also advanced. The dollar bought 119.74 yen compared with 120.14 yen in New York Tuesday, while the euro was at 133.29 yen against 133.74 yen.
World bourses have been on a slide since mid-August when China announced a shock devaluation of its yuan currency, feeding worries the economic giant is in more trouble than first thought and raising questions about Beijing's ability to deal with the crisis.
The country has suffered a slew of weak data, from trade and investment to consumer spending and inflation, despite authorities cutting interest rates five times since November.
On foreign exchanges the Australian dollar, which is heavily reliant on resources exports to China, tumbled 0.77 per cent on Wednesday, while other emerging units also suffered in a flight to safety.
South Korea's won lost 0.65 per cent, the Indonesian rupiah shed 0.53 per cent and the Malaysian ringgit was 0.81 per cent lower.
The Thai baht and Singapore dollar were also sold off.
Adding to selling pressure in weaker currencies are expectations of a US rate hike after three Federal Reserve presidents said they expect to see a lift-off by the year's end.
Their comments came after the bank held off moving last week, blaming threats from China's slowdown and turmoil in global markets, which in turn fuelled worries about the health of the United States.
On Tuesday US stocks and European bourses tanked on world growth concerns as well as the wider impact of Volkswagen emissions scandal on the auto sector.
The Dow, S&P 500 and Nasdaq all lost more than one percent. There were deeper losses in Paris, which shed 3.42 per cent, while London fell 2.83 per cent. Frankfurt dumped 3.80 per cent, with VW shares losing 35 per cent over two days.
Oil prices tanked after the data from China, the world's biggest energy user, was released. US benchmark West Texas Intermediate was 0.40 per cent lower and Brent crude retreated 0.52 per cent.