Stocks plunge, Treasuries rally on growth woes

Global stocks plunged while U.S. government debt yields fell to record lows on Wednesday as disappointing Chinese economic data added to a gloomy outlook voiced on Tuesday by the U.S. Federal Reserve.
The dollar, viewed as a safe-haven currency, gained against a basket of major currencies as investors pared their exposure to risky assets. However, it fell to a 15-year low against the Japanese yen as U.S. Treasury debt spreads over those of Japanese debt narrowed.
Oil prices declined some 1.5% on concerns about the global economic recovery, while gold prices were up.
The Fed announced on Tuesday it would use cash from maturing mortgage bonds it holds to buy more government debt, maintaining the current level of monetary stimulus.
Some investors interpreted the measure as a signal that policy-makers want to support financial markets while the economy goes through a possible pause in growth, but some said that strategy seemed to have backfired.
Investors decided the U.S. central bank's action was unlikely to have much immediate impact on the labor market and consumer spending, although the move reinforced expectations the Fed would keep interest rates low for longer.
"If one of the Fed's goals in yesterday's statement was to instill confidence in the market that they will do anything to make things better, they accomplished the exact opposite in that today we are even more worried about economic growth," Peter Boockvar, equity strategist at Miller Tabak & Co in New York, said in a note to clients.
Adding to investors' woes was data showing a slowdown in Chinese investment and factory output growth, coupled with a Bank of England downgrade of its growth forecast and a dovish tone from its governor Mervyn King.
The MSCI All-Country World index fell 2.1% while the FTSEurofirst 300 index of top European shares dropped 1.8%.
In the United States, the three major stock indexes each sank about 2%. The Dow Jones industrial average lost 198.13 points, or 1.86%, at 10,446.12, while The Standard & Poor's 500 Index fell 24.14 points, or 2.15%, at 1,096.92. The Nasdaq Composite Index was down 54.67 points, or 2.40%, at 2,222.50.
Yields on U.S. Treasuries fell, with the two-year note yield touching a record low of 0.493% earlier in the session.
The benchmark 10-year note traded up 20/32 in price to yield 2.699%, after touching a 16-month low of 2.717% in overseas trading.
The dollar gained against a basket of major currencies as investors became more averse to risk, with the U.S. Dollar Index up 1.53%. The euro was down 1.84% at $1.2935.
Against the Japanese yen, however, the greenback was down 0.53% at 84.95.
The dollar had earlier dropped to 84.72 yen on the electronic trading platform EBS. The record low in dollar/yen was hit in April 1995 around 79.75 yen.
U.S. crude oil fell 1.2% to $79.33 a barrel as a rise in U.S. crude imports and lower refinery operating rates raised concerns of a stock build in the world's largest energy consumer.