Weak economic data and a surge in oil prices to a new record above $54 a barrel fanned investor concerns about the health of the global economy today.
Stocks, bonds and currencies all felt the impact of the climb in US crude oil prices to $54.45.
US shares opened weaker while European stocks fell towards two-week lows on worries that corporate profits would be dented while government bonds rallied on concern about a decline in global economic output.
That was reflected in a big drop in investor confidence measured by Germany's ZEW expectations indicator, which slid to a 16-month low of 31.2 in October versus 38.4 in September, well below market expectations for 36.5.
The fall in the ZEW index, its third successive decline, followed French industrial output data showing a 1.9 per cent fall in August versus July compared to expectations for 0.1 per cent growth.
"This underlines that economic momentum in Germany is weakening. We've already seen the peak of this recovery," said Mr Lothar Hessler, an analyst at Trinkaus & Burkhardt.
The figures helped keep the two-year Schatz yield close to six-week lows around 2.45 per cent and pushed the December Bund future to a contract high of 116.48 as the prospects of a near-term rate hike from the European Central Bank receded.
"Today's weak ZEW is a further reason for the ECB to revise down its optimistic growth forecast. In contrast to money market futures we do not expect a rate hike until mid-2005," Mr Joerg Kraemer, chief strategist at INVESCO Asset Management in Frankfurt.