LONDON (Reuters) - The clear signal from the U.S. Federal Reserve that it will soon stop pumping money into the global economy and data pointing to Chinese growth slowing sparked sharp falls in bonds, shares and commodities on Thursday.
Emerging markets, many of which have been primed by the cheap Fed cash, saw some of the biggest selling as investors rushed to the exits.
Japan recorded their biggest daily drop since late 2011.
World stocks in general saw the largest one-day drop for 12 months, falling 1.9 percent with U.S. stock futures pointing to further losses when Wall Street opens .
Reflecting the broad swathe of reaction, South African 10-year yields spiked almost a half percentage point, the biggest one day rise in 10 years.
The initial catalyst for the selloff was Fed Chairman Ben Bernanke's surprisingly strong commitment to end the central bank's asset-buying by the middle of 2014. That sent 10-year U.S. Treasury note yields to 15-month highs.
"Bernanke came across as being quite clear and I think people were hoping for a less clear cut path to higher rates and that came as a little bit of shock," said Luca Jellinek, head of European interest-rate strategy at Credit Agricole.
The jump in T-note yields to a high of 2.45 percent lifted the dollar against a broad range of currencies by 0.7 percent. Against the yen, the greenback gained around 1.6 percent to 98 yen.
The Fed's $85 billion of monthly bond purchases has helped keep the world awash in investment cash as it has struggled with a severe economic downturn.
But Bernanke's commitment to begin cutting back on the spending before the end of this year and end it in 2014 if the economy keeps improving makes the outlook for financial markets more uncertain. This comes despite the fact that the move is motivated by expectations of a more robust U.S. economy.
"We see (Bernanke's statement) as a good sign in the long-term as it shows that a return to normal monetary policy is in the offing, that economic growth is picking up," said James Humphreys, senior investment manager at Duncan Lawrie Private Bank.
However, in the near term such a policy shift in the face of low inflation and a still modest growth was seen likely to make investors more risk adverse until the situation became clearer.
"We suspect that (the Fed) has made a policy mistake. We do not believe that growth is as robust as the way the Fed has characterized it, and we don't believe that inflation will pick up to the degree that the Fed expects," Gary Dugan, chief investment officer for Asia and the Middle East at Coutts.
The shift out of riskier assets gained added momentum from a survey of China's factories released earlier on Wednesday, showing activity at a nine-month low just as a squeeze in the nation's money markets sent short term rates to record highs.
The stress this caused investors was clear in the Asian credit markets, where the spread on the iTraxx Asia ex-Japan investment-grade index widened 23 basis points, reflecting the rising cost of hedging against debt default.
Across the region's currency markets the Philippine peso lost 1.2 percent to 43.76 per dollar, the weakest since May 31 last year, while South Korea's won fell 1.4 percent to 1,146.6.
India's rupee hit an all-time low on the U.S. dollar, prompting intervention to stem the rot.
"If you put the Chinese numbers together with the policy statements from both (the U.S. and China), what's clear to me is that the emerging market currencies, particularly with a commodity bias, will continue to go down," said Mark Matthews, head of Asia research at Julius Baer.
In Europe a key survey of business activity from the 17 countries that use the euro helped offset some of the gloom by suggesting the bloc's long-running recession was finally beginning to ease.
However, the broad FTSEurofirst 300 index , which only last month hit a 5-1/2 year high, had still fallen by over 2 percent by late morning, near to a 2-month low.
Markit's Flash Eurozone Composite Purchasing Managers' Index, which is seen as a reliable economic growth indicator for the bloc, rose to 48.9 in June from May's 47.7, topping forecasts and leaving it at its highest level since last March.
The most encouraging picture was in southern Europe where countries such as Spain and Italy saw the smallest declines in two years.
In commodity markets the combined impact of less Fed money to fuel speculative buying and weaker Chinese demand sent Brent oil $2 a barrel lower for its biggest daily slide in close to three weeks.
Gold tumbled past the lows set during a sharp selloff in mid-April to be below $1,300 an ounce, its weakest level since September 2010.
(Editing by Jeremy Gaunt)