AMSTERDAM (AP) — Global stock markets sold off Friday as investors were spooked by a possible slowdown in emerging economies, the main engine of growth since the 2008 financial crisis, and the prospect of tighter monetary policy in developed countries.
If interest rates in the U.S. or Europe rise, huge investment flows are likely to shift toward their economies, even if emerging markets may have better long-term growth potential.
Those issues added to country-specific concerns — about the stability of the government in Turkey or, in Argentina, the central bank's ability to defend the currency.
"Equities are in freefalls as fears over Argentina's stability have sent shockwaves throughout global markets," said IG Market Analyst David Madden.
"Simply put, dealers are taking their money out of equities and into safe haven assets like gold."
In the U.S., the Dow Jones Industrial Index fell 1.2 percent to 16,004.47 and the broader S&P 500 index shed 1.3 percent to 1,804.58.
In Europe Germany's DAX plunged 2.5 percent to close at 9,392.02 while Britain's FTSE 100 fell 1.6 percent to 6,663.74. France's CAC 40 dropped 2.8 percent to 4,161.47.
The run on emerging currencies began Thursday after a survey indicated a contraction in Chinese manufacturing activity in January for the first time since July. Days earlier, a report showed GDP growth was slowing.
Emerging market currencies, some of which depend greatly on demand for raw materials from China, reacted the most.
The South African rand, Russian ruble, Turkish lira, and especially the Argentinian peso — which fell 13 percent Thursday — have been "trounced," said Jane Foley, a currency strategist at Rabobank.
"Talk that the U.S. Federal Reserve will announce another reduction in its monthly bond purchases next week ... (is also) contributing to a loss of confidence in some emerging markets," she said.