GLOBAL STOCKS TUMBLE FURTHER AMID DOUBTS ABOUT CHINA

[The meltdown, which has erased nearly $10 trillion from the global stock market since a peak on June 3, poses a challenge to the Federal Reserve in the United States. The central bank’s chairwoman, Janet L. Yellen, and her colleagues on the Fed’s policy board have been warning investors for months that the central bank was moving toward the first increase in its main interest rate since it was cut to zero in December 2008.]

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By David Jolly and Neil Gough

PARIS — The global market turmoil continued on Monday, as

stocks fell sharply in Europe and Asia, led by another big sell-off in China.

Investors’ concerns over China’s economic slowdown and a souring view of emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up.

In China, the benchmark Shanghai composite index closed 8.5 percent lower, erasing all of the gains it had made in an extraordinary run-up this year. And in Europe, stocks fell sharply, with the main indexes down by 4 percent or more in the early afternoon.

Futures for the Standard & Poor’s 500-stock index slumped nearly 4 percent in premarket trading, pointing to a big sell-off at the opening bell in New York. The S.&P. 500 fell 3.2 percent on Friday. Nasdaq futures fell 5 percent as Apple, which has given up nearly 13 percent of its value in August, slid 10 percent in Germany.

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said there was no sense that an apocalyptic sell-off was at hand, with the United States and European economies able to withstand a bout of turmoil.

“We see this as a very nasty correction,” he said, “not the start of a new bear market.”

The meltdown, which has erased nearly $10 trillion from the global stock market since a peak on June 3, poses a challenge to the Federal Reserve in the United States. The central bank’s chairwoman, Janet L. Yellen, and her colleagues on the Fed’s policy board have been warning investors for months that the central bank was moving toward the first increase in its main interest rate since it was cut to zero in December 2008.

But higher interest rates could further rattle markets. “September is probably off the table for a rate hike,” Mr. Gijsels said, adding that even December was looking unlikely.

Many analysts have said that a correction to stock market valuations was overdue after a long bull market. And it is too early to say how the financial market slump will affect the underlying global economy where goods and services are actually produced and consumed.

Commodities also suffered Monday. Futures for Brent and United States crude oil fell to their lowest point in more than six years on concerns about possible weaker demand from Asia amid a general oversupply. Contracts for the European benchmark Brent crude fell 3.7 percent to $43.80 — its first time below $45 since March 2009.

The selling in China has accelerated despite extraordinary government intervention in the past two months aimed at propping up share prices. As the slide on Monday highlighted, those efforts have not been a success and the damage has been felt far beyond the Chinese market. The gloom was shared across Asia. In Japan, the Nikkei 225 stock average closed 4.6 percent lower, while Australia’s main index fell 4.1 percent.

In Hong Kong, where the Hang Seng Index closed 5.2 percent lower, the mood at brokerages was grim.

“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; the Chinese stock markets are in free fall today.”

Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looked sourly at the monitors at his local brokerage in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.”

The dollar rose against most Asian currencies, with the exception of the yen, which is considered a regional haven. The dollar fell 1.5 percent to 120.18 yen.

The euro gained 0.9 percent against the dollar, trading at $1.1491.

Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi UFJ in London, said in a research note that the rising euro and yen were “creating a policy headache for the European Central Bank and Bank of Japan,” as well as for the Fed.

Stronger currencies, he said, would make it harder for central banks to fight deflationary pressures. He noted that long-term forecasts for the eurozone showed inflation beginning to return to the levels that existed before the European Central Bank began its bond-buying program this year.

The rout has deepened globally as uncertainties have increased over the health of China’s economy, previously a major engine of global growth. The surprise devaluation on Aug. 11 of China’s currency, the renminbi, was the biggest drop since the country’s modern exchange rate system was established in 1994.

The move raised concerns that China’s slowdown was worse than it had previously appeared to be, a development that would have far-reaching effects, given China’s increasing economic importance to Asia and the rest of the world.

“Asian financial markets are seeing an intensification of selling pressure in the aftermath” of China’s devaluation, Claudio Piron, a strategist in Singapore for Bank of America Merrill Lynch, wrote on Monday in a research report. “The market’s confidence in China’s ability to deliver growth remains in question.”

One big question is whether China’s stock market plunge will make the Chinese economy, the world’s second largest after that of the United States, even weaker. China’s exports were down 8 percent in July compared with a year earlier, while auto sales were down 7 percent.

But Xu Sitao, the chief China economist in the Beijing office of Deloitte, said in a speech in Hong Kong that the effect on the economy could be muted because equities represent only 7 percent of the overall wealth of urban Chinese households, which continue to rely very heavily on real estate in their holdings.

“The stock market really has a very, very insignificant impact on the Chinese economy,” he said.

Instead, China’s slowdown is being driven by more traditional industry. On Friday, new data showed China’s manufacturing sector contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis.

It was the latest sign of continued deterioration in industrial activity across China, suggesting that the government’s efforts to support growth — which include several interest rate cuts and directing billions of dollars in new loans to infrastructure projects — have fallen short.

At the same time, state intervention in the stock markets appears to have backfired. China’s stock markets had enjoyed a tremendous rally, more than doubling in the year to mid-June. But they have plunged since then, despite the government ordering state agencies to buy shares and barring large shareholders from selling down their stakes.

Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level this year; it traded as low as 3,191.88 points, a drop of 9 percent from the close on Friday and nearly 40 percent below its peak in June. Mainland shares are only allowed to rise or fall by 10 percent per day before they are suspended from trading. Shares in more than 800 of the nearly 1,100 companies in the Shanghai index fell by the limit.

The plunge in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks.

Pension funds can now invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trillion renminbi, or about $550 billion, in retirement savings of ordinary citizens.

Many economists now expect the central bank, the People’s Bank of China, to cut the ratio of deposits that banks are required to keep on reserve in a bid to help stem outflows of capital, which rose to a record of $70 billion in July and probably accelerated in the weeks since the renminbi was devalued.

Reducing this so-called reserve requirement ratio, or R.R.R., would help bring down rates in China’s money markets, which have been climbing in recent months, despite the central bank’s recent attempts to add more liquidity.

“Economic activities remain weak and the likelihood of an imminent R.R.R. cut has increased,” Li-Gang Liu, the chief economist for China at the Australia and New Zealand Banking Group, wrote on Monday in a research report. “In the near future, we expect the People’s Bank of China to continue managing market liquidity conditions.”

David Jolly reported from Paris, and Neil Gough from Hong Kong. Keith Bradsher contributed reporting from Hong Kong. Cao Li contributed research from Beijing.

@ The New York Times