Europe's main markets fell as much as 0.4 percent before recovering
some poise. That followed a 1 percent dive for Asian shares, with
European oil and gas stocks - traditionally among the most exposed
to signs of weakening demand from China - falling as much as 1.3
Brent crude oil slumped to a more than two-year low under $97 per
barrel as the lackluster data from the world's top energy consumer
cast a shadow over the outlook for oil demand at a time of abundant
"Economic growth in China is one of the key drivers of world growth
and generally of oil demand," said Ric Spooner, chief market analyst
at CMC Markets. "It seems likely that (oil) demand growth won't keep
up with the growth in supply capacity."
The United States and European Union imposed fresh sanctions on
Moscow last week, hampering exploration of Russia's huge Arctic and
shale oil reserves and setting rules on tougher financing of
existing Russian projects.
Oil companies impacted include Gazprom, Gazprom Neft, Lukoil,
Rosneft shares inched up on Monday after the Russian government said
it would create a multi-billion dollar fund to help companies -
although the funding announced for it fell way short of the almost
$40 billion Rosneft says it needs in aid.
The dollar, whose rise since early July is its longest winning
streak since 1997, continued to gain <.DXY> and bank analysts said
expectations that the U.S. currency would continue to gain were
likely to weigh on commodities.
At the same time, the boom in shale gas exploration in the United
States has removed one of the big sources of tension from the global
"A strong dollar has an impact on commodity prices generally, but
there is also the issue of shale gas in the U.S.," said Jane Foley,
an analyst "Clearly the U.S. can't export shale gas but it means
that some of their previous suppliers are looking for new markets.
There is a lot of supply out there that would have historically gone
into the U.S. but is now going to other global markets."
Sterling, which has recovered a foothold in the past few days,
slipped following another round of polls that showed Thursday's vote
on Scottish independence remains too close to call.
One-week implied volatility - the best measure of the scale of the
risks to the pound seen by markets - remains at its highest in four
[to top of second column]
A vote by the Scots to leave the United Kingdom would have
wide-ranging consequences and could drive sterling sharply lower,
but the market pricing also encapsulates the risk of a snap back in
the event of a vote for the status quo.
One poll over the weekend showed the "No" vote 8 points in front,
while another showed the same lead for the Yes camp and two others a
51-49 percent and 53-47 percent split respectively in favor of
sticking with the union.
"While likely to be highly volatile, sterling should hold above last
week's lows ahead of, and then rise following, the confirmation of a
‘No’ outcome from Thursday's Scottish referendum," Credit Agricole
analysts said in a note.
The bearish Chinese data has added to worries about a 40-percent
slide in iron ore prices this year and further soured sentiment for
The Australian dollar fell below 90 U.S. cents for the first time
since March, down half a percent on the day and extending a decline
from 94 cents early this month. Australia's S&P/ASX 200 index
shed 0.8 percent, South Korea's KOSPI dipped 0.3 percent and Hong
Kong's Hang Seng fell 0.6 percent.
There has been strong demand for the U.S. dollar as investors
positioned for a slightly more hawkish shift from the Federal
Reserve this week at its Sept. 16-17 policy meeting.
This has driven U.S. Treasury yields higher, with the 10-year yield
last week scoring its biggest rise in over a year.
"The key question surrounding this week's policy event is whether a
widely expected change in FOMC forward guidance is sufficient to
refuel USD buying," Credit Agricole analysts wrote in a report.
(Editing by Gareth Jones)
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.