HONG KONG - Asian markets resumed their downward spiral 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.
Iranians drivers refuel their vehicles at a gas station in the capital Tehran on January 19, 2016
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 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 US$28, days after Brent also slipped below the level. Both contracts edged back up, but in morning trade WTI was down one% at $28.17 and Brent off 0.3% at $28.67.
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. Tokyo lost 2.2% by the break, Hong Kong was 3.28% down and Sydney shed 0.6%.
- 'Tug-of-war' -
Shanghai swung in and out of positive territory and was sitting 0.6% down in mid-morning trade.
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 0.3% 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.
- Key figures around 0230 GMT -
Tokyo - Nikkei 225: DOWN 2.2% at 16,681.33 (break)
Shanghai - Composite: DOWN 0.6% at 2,989.78.
Hong Kong - Hang Seng: DOWN 2.8% at 19,081.37
Euro/dollar: UP at $1.0930 from $1.0912 Tuesday
Dollar/yen: DOWN at 117.26 yen from 117.59 yen
New York - Dow: UP 0.2% at 16,016.02 (close)
London - FTSE 100: UP 1.7% at 5,876.80 (close)