NEW YORK (Reuters) - Global equity markets fell on Monday as civil unrest in Hong Kong weighed on investor sentiment, while U.S. Treasury debt prices rose over uncertainty sparked by the protests.
Stocks on Wall Street opened sharply lower following declines in Europe and Asia as Hong Kong democracy protesters defied volleys of tear gas and police baton charges in one of the biggest political challenges for China since the Tiananmen Square crackdown 25 years ago.
Shares of companies exposed to Hong Kong fell, including HSBC (HSBA.L) and luxury goods group Richemont CFR.VX. HSBC closed down 2.3 percent and Richemont fell 1.7 percent.
Emerging markets took a hit. MSCI's emerging markets index .MSCIEF fell 1.45 percent, with Brazilian shares a big drag.
The Brazilian real fell to an almost six-year low and the benchmark Bovespa index .BVSP notched its biggest one-day drop in more than three years after a poll showed President Dilma Rousseff gaining on challenger Marina Silva ahead of Sunday's election. The Bovespa fell 4.5 percent.
Losses on Wall Street were initially broad, with all 10 of the S&P 500's sectors lower as equity investors shrugged off the latest data showing a stronger U.S. economy. Stocks later pared losses, and utilities, seen as a defensive play, rebounded.
The sell-off in U.S. stocks was overdone and exacerbated by the absence of any news of consequence to the market, said Donald Selkin, chief market strategist at National Securities in New York.
"The problem is we're not going to get any upside motivations here until the start of third-quarter earnings season next week," said Selkin, adding that Friday's jobs report will be the next major event for investors.
When the CBOE Volatility Index .VIX rose above 17, or close to resistance points in April and early August, the market's decline receded, Selkin said.
The VIX closed up 7.61 percent at 15.98.
The Dow Jones industrial average .DJI closed down 41.93 points, or 0.25 percent, at 17,071.22. The S&P 500 .SPX fell 5.05 points, or 0.25 percent, to 1,977.8 and the Nasdaq Composite .IXIC shed 6.34 points, or 0.14 percent, to 4,505.85.
MSCI's all-country world index .MIWD00000PUS was down 0.45 percent, while the FTSEurofirst 300 index .FTEU3 of leading European shares closed down 0.43 percent at 1,371.11.
Benchmark 10-year U.S. Treasury notes US10YT=RR gained 14/32 in price to yield 2.4943 percent.
Uncertainty around the protest in Hong Kong was seen as one driver of demand for bonds. Month-end buying added to demand, while some gains were also seen as giving back weakness from Friday over fears that bond behemoth Pimco would have to sell assets after the departure of co-founder Bill Gross.
Volatility in rates also spiked on Friday over concerns that Pimco would unwind large positions that bet on low volatility.
"The idea was that Pimco has sold a lot of vol and they may get out of some of those positions," said Ira Jersey, an interest rate strategist at Credit Suisse in New York.
U.S. consumer spending accelerated in August, while contracts to purchase previously owned homes fell more than expected last month but were still at the second-highest level of the year. Investors are keen to see Friday's much-anticipated jobs report for September for further signs on the economy.
The dollar erased early gains against the yen on concerns the protests in Hong Kong might hurt the local economy and the city's status as a global financial hub. During bouts of political tension, investors often seek the safe haven of the Japanese currency.
The greenback, however, gained 0.16 percent to 109.45 yen JPY= after hitting a six-year peak of 109.74 yen in Asian trading, according to Reuters data. The euro EUR= rose 0.03 percent to $1.2687.
U.S. crude oil rose, backed by strong U.S. economic data, while Brent edged up after nearing a two-year low last week.
Brent for November delivery LCOc1 settled up 20 cents at $97.20 a barrel. U.S. crude CLc1 rose $1.03 to settle at $94.57 a barrel.
Reporting by Herbert Lash; Additional reporting by Marius Zaharia in London; Editing by Chris Reese and Dan Grebler