Asian stocks, commodities slide on disappointing China PMI

MSCI's broadest index of Asia-Pacific shares outside Japan slip 2.5%

Asian stocks looked set for their biggest single-day fall in a month on Wednesday after factory activity in China shrank more than expected, adding to fears of a weakening global economy and sending investors into safer assets such as government bonds.

Financial spreadbetters predicted European markets would follow Asia lower, with Britain's FTSE 100 seen opening down 0.9%, Germany's DAX 1% and France's CAC 40 0.7%.

S&P mini futures fell 1% after the weak China report, pointing to a weaker opening on Wall Street.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.5%, its biggest daily loss since Aug 24, according to Thomson Reuters data.

China's stocks were among the hardest hit in the region with main indexes down more than 2%. Australia fell 2% and South Korea shed 1.5%. Japanese markets are shut through Wednesday.

"The industrial sector in China remains a concern, indicating that the economy is not out of the woods yet, while the Fed's comments last week indicate a glass half-empty view of the global economy," said Tai Hui, chief Asia markets strategist at JP Morgan Asset Management in Hong Kong.

More evidence of a slowdown in the world's second-biggest economy was evident in the preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI).

Activity in China's factory sector failed to improve in September as expected, and instead shrank for a seventh straight month to its weakest level in 6-1/2 years, the private survey showed.

The findings could add to fears that China's economy is cooling more sharply than earlier expected, though most analysts still believe a gradual albeit bumpy slowdown is more likely.

On Tuesday, the Asian Development Bank lowered its growth forecast for China to 6.8% for 2015.

Sentiment at Asia's biggest companies tumbled at a record pace in the third quarter on worries about China and the risks it poses to global growth, a Thomson Reuters/INSEAD survey showed.

Overnight on Wall Street, the Dow Jones industrial average fell 1.09%, the S&P 500 lost 1.23%, and the Nasdaq Composite fell 1.5% to 4,756.72.

Losses in equities prompted investors to plough funds into fixed-income assets. The benchmark two-year US Treasury yield fell to 0.68%, nearing a two-week low.

The spread between the 10-year bond and the 2-year bond has narrowed to 146 basis points from 176 basis points in early July, indicating markets were expecting sub-par economic growth.

Risk aversion was rife in currencies with the higher-yielding Australian dollar, down 0.9% at more than one-week lows.

The US dollar consolidated most of its overnight gains. It held firm at 96.275 against a basket of six currencies, after rising by 1%. The Japanese yen held firm against the dollar at 120.24 as investors shied away from adding risky bets.

US crude futures rose 0.5% to $46.16 per barrel, while Brent futures were 0.3% firmer at $48.74.

Copper extended losses and neared four-week lows after the China PMI report. Overnight it posted its biggest one-day drop in more than two months as fund and speculative selling pushed prices down. A 19-commodity Thomson Reuters/Core Commodity CRB Index held at two-week lows.

Broader risk aversion failed to lift demand for precious metals with both spot gold and silver nursing big overnight losses.