Global equity markets staged a late rebound along with oil prices on Wednesday to cut declines from 2-1/2 year lows, but remained on pace for one of the most dismal monthly performances on record.
Oil prices tumbled once again after the International Energy Agency had warned on Tuesday the market could "drown in oversupply" and on concerns about the impact of a slowing China on global economic growth.
The rout in oil prices has prompted spending cuts and layoffs in the energy sector and sparked concerns about the impact of energy loans on the banking sector.
Indexes managed to rebound from steep losses, however, as new front month March futures and Brent pared declines.
"If you look at crude prices, they are shooting right back up, so I would say you can blame whatever is in equities to crude because they are incredibly highly correlated," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
"There is no doubt that is why equities are going up."
Wall Street ended with declines of more than 1 per cent after tumbling more than 3 per cent during the trading session. Healthcare was the only one of the 10 major sectors in positive territory while the energy sector cut losses in half to finish down 2.9 per cent.
The Dow Jones industrial average fell 249.28 points or 1.56 per cent to 15,766.74, the S&P 500 lost 22 points or 1.17 per cent to 1,859.33 and the Nasdaq Composite dropped 5.26 points or 0.12 per cent to 4,471.69.
The MSCI World equity index lost 2 per cent after falling as much as 3.4 per cent its lowest level since June 2013. The index has already dropped 10.5 per cent in January, which if sustained would be the worst monthly loss since October 2008, the month after Lehman Brothers went bankrupt.
There have been steeper monthly drops only five times in the MSCI World index's 28-year history, two of which occurred during the financial crisis in 2008.
US crude plunged to a low of $26.19, its lowest since May 2003. WTI for February delivery, which expired at the end of the day, settled down 6.7 per cent to $26.55 while Brent crude lost 3.1 percent, to $27.88.
European shares closed at their lowest level since October 2014, with the FTSEurofirst 300 down 3.3 per cent, to notch its biggest single-session decline in six weeks.
France's CAC and Britain's FTSE both tumbled more than 3 per cent for their worst session declines of the year and Germany's DAX lost 2.8 per cent, for its worst daily drop since the first trading day of 2016. The decline confirmed a bear market for the FTSE, down 20.1 per cent from its closing high in April.
Oil shares in Europe are down more than 14 per cent already this year and at their lowest levels since March 2003. That has been a major weight on the FTSEurofirst 300, which is down nearly 12 per cent in 2016 and more than 23 per cent from its high in April.
The safe-haven yen climbed as risk appetite soured, dragging the dollar to a one-year low, as investors trimmed the chances of more tightening by the Federal Reserve. The US currency was down 0.6 per cent at 116.88 yen after hitting a session low of 115.96 yen.
While the dollar fell against the yen, it was strong against emerging market currencies, compounding the misery for many countries already suffering from low oil prices.
Demand for US bonds, another asset sought in times of uncertainty, was high, with yields on benchmark 10-year Treasury notes down to 1.9911 percent, after falling as low as 1.939 percent, up 13/32 in price.