GLOBAL MARKETS-Stocks slump, bonds rally as global growth fears mount

Wed Oct 15, 2014 12:20pm EDT
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* Caution reigns after disappointing China inflation reading

* Bond yields, oil prices hit fresh lows on demand fears (Updates prices; changes comments, byline, dateline from previous LONDON)

By Rodrigo Campos

NEW YORK, Oct 15 (Reuters) - Stocks and the U.S. dollar slumped and safe-haven government debt rallied on Wednesday, as investors around the globe resumed their flight from riskier assets after weak U.S. and Chinese inflation figures.

Selling in stocks appeared panicky at the open on Wall Street, with major indexes down more than 2 percent early in the session. Markets cut losses in half but indexes remained at multi-month lows.

Markets churned as investors worried about a number of issues: slowing global growth and how central banks will respond, a glut of oil supply that has slammed crude futures, and the Ebola outbreak.

"You couple this (weak data) with fears about the spread of Ebola, with the recent downtrend and what we had today, the mindset has been a flight to safety and cash is certainly a safe place to be in," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

Flight from risk resulted in a massive rally in U.S. Treasuries, pushing the 10-year note's yield as low as 1.865 percent, its lowest since May 2013. Declining bond yields and sharp moves in U.S. federal funds futures contracts showed investors now believe the U.S. Federal Reserve is unlikely to raise rates in 2015.

That view fueled a selloff in the dollar. Soft U.S. retail sales and inflation data fed the view that the Fed would delay its first rate hike, which weighed on the U.S. currency.   Continued...