A downgraded investment rating on the United States' long-term national debt prompted a tumble in world stocks and propelled spot gold prices close to a record $US1500 ($NZ1896) yesterday.
All three major indexes on Wall Street declined more than 1% after rating agency Standard & Poor's downgraded the US' credit outlook from stable to negative, albeit maintaining its quality AAA ranking.
The Dow Jones was down 1.1%, the Nasdaq 1.06% and the S&P 500 1.1%.
European shares sank to a three-week low, UK stocks had their largest decline in five months and Asian stocks fell, with the only major bourse posting a gain on Monday being Australia's ASX, which was up 0.1%.
In response, the NZX opened weakly yesterday, trading down 0.2% and ending the day down 25.19 points at 3439.98, while the ASX also declined when it opened.
As investors sold stocks around the world they turned to gold, as a historical hedge against inflation, pushing its price to a record $US1497.20 an ounce in London.
While tensions in Africa and the Middle East had sparked recent 32-month peaks in oil prices, they fell sharply after the S&P downgrade, trading around $US120-$US121 per barrel as global demand was seen to be weakening.
Craigs Investment Partners broker Chris Timms said the S&P downgrade, which at one stage wiped 250 points off the Dow Jones, served as a reminder investors might not remain patient over the growing US debt, which now stands at $US14.2 trillion.
"This year's shortfall is projected to be about $US1.5 trillion, roughly 10% of the US gross domestic product," Mr Timms said.
Forsyth Barr broker Suzanne Kinnaird said the US markets "tumbled in heavy volume" after the S&P downgrade because the rating agency believed there was a risk US policy-makers might not reach agreement on how to address the country's long-term fiscal pressures.
"The CBOE volatility index, better known as Wall Street's `fear gauge', surged more than 17%," Ms Kinnaird said.
Mr Timms said the $14.2 trillion US debt was "expected to balloon"' because of rising costs within health care, retirement, other Government-funded entitlements and interest payments on the existing debt.
S&P said there was a 1-in-3 chance it could cut its long-term credit rating on the US within two years.
"This new warning, this time from S&P, highlights the need for the US to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy," Mohamed El-Erian, chief executive at Pimco, which oversees $1.2 trillion in assets, told Reuters.
Gold also got a boost from concerns about inflation in emerging markets, Reuters reported.
China again raised the required reserves its banks must carry for the fourth time this year, extending the fight against stubbornly high inflation.
"It certainly looks as though there are signs that inflation is uncomfortably high within the Asia region," RBS analyst Daniel Major said.
