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Hong Kong- Asian markets resumed their downward spiral on Wednesday with the previous day's China-fuelled rally effectively wiped out by ongoing worries about plunging oil prices and the state of the world economy.
The International Monetary Fund's decision to downgrade its global growth forecast for this year and issue a warning about the outlook added to the sense of doom across trading floors.
News from Beijing that the world's number two economy - a key driver of worldwide growth - had expanded within forecasts provided a much-needed lift on Tuesday.
While the figures represented the slowest rate in 25 years, they did fuel hope that China's leaders would embark on a new round of stimulus, sending Asian and European markets sailing.
However, the joy gave way later in the day to the reality that oil prices were at more than 12-year lows and a supply glut was likely to continue for some time.
The mood was darkened by International Energy Agency's warning that the market "could drown" in oversupply as key producer Iran - freed from years of global sanctions - resumes exports of the commodity.
On Wednesday US benchmark West Texas Intermediate fell to fresh lows below $28, days after Brent also slipped below the level. In late morning trade WTI was down 1.9% at $27.93 and Brent off 0.8% at $28.52.
Crude has lost three quarters of its value since mid-2014, hit by a perfect storm of a supply glut, weak demand, a slowing global economy and a strong dollar.
Regional stock markets fell in line with the depressed oil price and on worries about China. Hong Kong was 3.8% off by lunch, falling to its lowest level since early 2012, while Tokyo lost more than three percent at one point in the afternoon before edging back up. Sydney shed 1.2%.
‘Tug-of-war'
Shanghai swung in and out of positive territory and was sitting 1.4% down at lunch.
The losses were characteristic of the start to a year that has seen world markets slump, wiping trillions off valuations.
"We'll continue to see a tug-of-war between nervous sentiment and technical indicators showing that falls have gone too far," Chihiro Ohta, general manager of investment information at SMBC Nikko Securities Inc. in Tokyo, said by phone.
"At the root of the selling we've seen this year has been the imbalance of oil supply and demand, so until the oil price moves calm down, the stock market will struggle."
The IMF cut its growth outlook for the global economy to 3.4% from 3.6% previously, saying there were substantial risks in major emerging market economies.
The stronger US dollar, collapsed oil prices and political turmoil could all wreak further havoc and warned of danger if China does not manage its slowdown well and reforms its economy.
Emerging market currencies slipped as investors shifted out of high-yielding, riskier, assets. The Australian dollar fell 0.5% against the greenback, while the Indonesian rupiah shed 0.4% and oil-dependent Malaysian ringgit shed 0.3%.
New Zealand's dollar lost 0.5% as the country's inflation came in at the weakest level in 16 years, fuelling speculation authorities could cut interest rates from already record lows.
