Global stocks drop in worst month since 2012; crude rallies

Global stocks added to losses that have them poised for the worst month in more than three years on fresh concern China's efforts to prop up its markets will fail. US equities pared declines as crude rallied to a one-month high.

The Standard & Poor's 500 Index almost erased a decline of more than 1 per cent as oil surged after the US cut output estimates and Opec (Organization of the Petroleum Exporting Countries) signalled it's ready to achieve "fair prices". The US equities gauge remains poised for the biggest monthly slide in more than three years, amid the rout in global risk assets sparked by China's shock currency devaluation on August 11. Chinese stocks capped their worst sell-off since 2008, while investors sought the safety of the yen.

"The markets are still digesting the China news and it seems that the uncertainty from China's roller-coaster is not over yet," said Guillermo Hernandez Sampere, who helps manage the equivalent of $167 million as head of trading at MPPM EK in Eppstein, Germany. "Any panic created out of this high volatility keeps investors out of the market. There's still no clear message" on when the Fed will raise rates, he said.

The S&P 500 dropped 0.3 per cent at 12:29 pm in New York, and the MSCI All-Country World Index slid 0.4 per cent, poised for the biggest monthly drop since May 2012. The yield on 10-year Treasury notes was little changed near 2.18 per cent. US crude jumped 5 per cent, while the yen strengthened for the first time in five days

The rout in global equities this month has erased more than $5 trillion from the value of shares in August as Chinese policy makers are trying to bolster the market amid growing concern that its economy may be in worse shape than analysts had estimated.

Trading in US equities has been volatile, with the S&P 500 last week alone plunging the most since 2011 to enter a correction, only to rally more than 6 percent over two days for its best back-to-back gains since the beginning of the bull market in 2009.

The gauge tumbled out of the gates Monday, sliding as much as 1.2 per cent in early trading before cutting the drop to 0.1 per cent after oil rallied. The Chicago Board Options Exchange Volatility Index rose 3.7 per cent, putting its monthly surge past 120 percent, the most since data began in 1990.

"People are happy to tiptoe this week," Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. "There's so much emotion right now and in this environment you can come in any morning and have something out of Europe or Asia crossing us and that's what causes us to move. True there were a lot of people who wanted to buy a correction but after last week they paused and are thinking about how long it is going to last."