Global shares extended losses on Thursday, hit after short-lived gains in commodity prices highlighted the market volatility seen in past days, prompting investors to purge risky positions in favor of the dollar.
European shares fell nearly 1 percent, stung by losses in mining and energy shares as gold and oil prices relinquished gains made in Asia due to ongoing concerns about a cooling of the Chinese economy even as inflation remains high.
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This may affect demand for natural resources in the world's No. 2 economy, and such concerns weighed on commodity markets, which looked set to extend a second big rout in less than a week.
Persistent speculation about a possible Greek debt restructuring also cut demand for higher-risk assets and held the dollar -- whose vast liquidity makes it a popular choice with investors during periods of uncertainty -- near a three-week high versus a currency basket.
A sharp reversal in commodities in Europe served as a reminder of markets' vulnerability to hefty losses -- oil fell more than 5 percent on Wednesday -- which will likely steer investors further away from higher-risk assets.
"Markets are worried about high commodity prices, higher inflation, lower consumer spending power, rising interest rates and potential downward GDP growth forecasts especially for Japan, the euro zone and the UK in the near future," said Derek Lawless, head of WorldSpread France in Paris.
"You can really take your pick in identifying the risks out there. One of them will send us over the cliff."
The MSCI's world equity index .MIWD00000PUS fell 0.8 percent, extending the previous day's losses and pulling further away from a three-year high hit last week, while the Thomson Reuters global stock index fell 0.5 percent.
Oil prices stayed pressured in the wake of a surprise rise in U.S. gasoline inventories.
Brent crude fell 0.7 percent to $111.80 per barrel, extending the previous day's fall of more than 4 percent, according to Reuters data. U.S. crude fell 1 percent, adding to its 5 percent tumble on Wednesday.
SILVER DOWN, DOLLAR UP
Gold dipped 0.4 percent to $1,494.46, adding to a 1 percent loss on Wednesday. while spot silver fell around 2.5 percent to $34.16 an ounce, after a fall of nearly 9 percent the previous day.
Even with its recent losses, silver remained the best performer of the precious metals complex, up 10.3 percent so far this year, compared to gold's 5.3 percent gain and falls for platinum and palladium.
The dollar index, meanwhile, traded at 75.256 .DXY, holding it near a three-week high hit the previous day.
Some analysts expect the latest bout of risk aversion will prompt investors to continue covering short positions in the U.S. currency, keeping it supported in the near term.
"We are seeing a closing of short dollar positions related to an unwinding of long commodity trades," said Niels Christensen, currency strategist at Nordea in Copenhagen.
He added that increasing speculation that Greece's debt problems could spin out of control highlighted ongoing fiscal issues in the euro zone, which could bruise the euro.
"The euro zone sovereign debt crisis is a negative for the euro, particularly when other factors are playing in favor of other currencies."