World shares sank to their lowest level in more than a month and emerging markets endured another wave of selling on Tuesday, as unease about an expected cut in U.S. stimulus and related gains in bond yields left investors on edge.
Europe's main stock markets were down almost 1% by mid-morning following a fourth straight day of falls on both Wall Street and in Asia as India, Indonesia and other developing markets suffered.
U.S. shares were set to open slightly lower again on Tuesday.
Wednesday's minutes from the most recent Fed meeting could offer fresh hints on when the U.S. central bank will start winding down its $85 bln-a-month support programme, a tricky process markets have been nervous about for months.
The uncertainty has broadly driven up bond market borrowing costs in recent weeks, which in turn has sparked a sell-off in the riskier assets that have soared over the last few years.
The upward squeeze on U.S. government bonds eased overnight and the benchmark 10-year Treasury continued to edge away from Monday's two-year high in European trading, leaving it at 2.1824% ahead of the U.S. restart.
As has been the recent pattern, German government bonds, Europe's equivalent benchmark, moved in lockstep with yields easing to 1.861% having topped 1.9% a day earlier.
On European share markets, a 10.8% jump to 19.40 points in the Euro STOXX 50 Volatility Index indicated uncertainty over the near-term outlook, though the measure remained below its 2013 peak of 26.80 points.
EMERGING WOES
The jitters about the future of U.S. stimulus continued to batter emerging assets, given fears that an end to cheap money and an improvement in advanced economies' prospects could see a stampede of investment leaving already-strained markets.
Indonesia and India saw their stock markets fall 4% and 1%, respectively, as their currencies also continued to tumble.
Japan's Nikkei slumped too, falling 2.7%, reflecting the exposure of many Japanese companies to India and Indonesia.
The rupee and Indonesia's rupiah as well the Thai baht saw some relief in European trading but Callum Henderson, head of FX research for Standard Chartered, said things may only settle down once the Fed's plans become clear.
COMMODITIES REVERSE
Futures prices pointed to another day of pressure for Wall Street where the S&P 500 is currently experiencing its worst run since the end of last year.
Despite the focus on the Fed cutting its stimulus, the dollar fell against a basket of major currencies, a move that left both the euro and sterling at one-month highs. Emerging market volatility also spurred the yen.
In commodities, copper began to claw back after dropping to $7,264.75 per tonne, while gold eased to $1,364 per ounce after snapping a three-day winning streak on Monday and moving away from a two-month high hit that session.
Brent crude prices fell 0.5% to $109.36 a barrel, pressured by the Fed speculation but supported by the loss of Libya's oil exports as well as concerns that continuing unrest in Egypt could spread and interfere with supply.
