UKX FTSE 100 Index

By Riva Gold and Saumya Vaishampayan 

Investors around the world fled stocks and piled into havens Thursday as a cautious tone from the Federal Reserve, a resumption of the slide in bank shares and a fresh fall in oil prices fueled anxiety about the global economy.

As investors sought safety, U.S. government bonds, the yen and gold surged. The yield on the 10-year Treasury note dropped to 1.588% from 1.706% on Wednesday, approaching its record closing low of 1.404% in July 2012. Gold futures gained 3.6% to $1237.90 an ounce, and the dollar fell 0.7% against the yen to Yen112.60.

Stock futures pointed to a 1.6% opening loss for the S&P 500. Changes in futures don't necessarily reflect market moves after the opening bell.

U.S. crude oil declined 2.2% to $26.84.

The Stoxx Europe 600 fell 2.9%. Banking and mining shares dropped, while the U.K.'s FTSE 100 index was on track for its lowest close since 2012. Investors also shed stocks in Asia.

Stock-futures trading volumes were high but haven't yet surged to levels hit last summer. "We just haven't seen the panic...'get me out at any price' trading," said John Brady, managing director at futures brokerage RJ O'Brien. "That says to us that we have further to go."

Investors were nervous after Federal Reserve Chairwoman Janet Yellen on Wednesday highlighted risks to growth and inflation, but delivered a less dovish tone on interest rates than many investors had hoped for. Ultralow interest rates boosted asset prices for several years.

While Ms. Yellen's statements heightened anxiety about the state of the U.S. economy, they "do not appear to take all of 2016 off the table [for rate rises]," said Bill Northey, chief investment officer at the Private Client Group at U.S. Bank.

Ms. Yellen will discuss the economic outlook and monetary policy with the Senate Banking Committee later Thursday.

In Europe, bank stocks declined 5.7% following a brief bout of relief on Wednesday.

French bank Société Générale SA on Thursday reported a jump in net profit, but warned that it may fall short of its profitability target this year. Shares fell 12%.

Shares in Credit Suisse fell 8.1%, while shares of UniCredit fell 8.4% and Greece's Eurobank Ergasias fell 19%.

Europe's banking sector is down 28% this year amid uncertainty around interest rates, non-performing loans and turmoil in emerging markets.

Investors are now questioning whether the concerns will morph into a systemic banking crisis, said Bo Christensen, chief analyst at Danske Invest, which manages about $116 billion in assets. While he doesn't believe they will, "it's just a lot of bad news coming at a point in time when markets are very skittish," he said.

Low interest rates are also adding to pressure on banks as they hit net interest margins. On Thursday, Sweden's central bank cut its main interest rate further into negative territory, as the European and Japanese central banks test the boundaries of how low interest rates can go.

Meanwhile, falling oil prices have also hit energy companies and high yield debt. Recent falls in oil prices have fueled concerns among investors about the strength of the global economy, as well as possible spillover effects from bankruptcies in the energy sector and declines in energy-dependent economies.

"We're stuck in a nexus where the feedback loop from lower commodity prices is negative to all equities and banks," said Mr. Christensen.

Markets in the eurozone's periphery tumbled to multiyear lows Thursday amid the broad flight from risky assets. Spanish and Italian stock markets were on track to close at their lowest levels since August 2013, while Portuguese stocks fell to their lowest level since 2012's sovereign debt crisis and Greek stocks fell to their lowest since 1989.

Portugal's 10-year yield surged by 0.65 percentage point to 4.13% as investors dumped government bonds perceived as risky.

Europe's basic-resources sector also fell sharply Thursday after mining giant Rio Tinto PLC swung to an annual loss and scrapped its commitment to maintaining or steadily increasing its dividend each year amid a sharp downturn in commodity prices. The miner's shares declined 5%.

Earlier, Hong Kong's Hang Seng Index fell 3.9%, catching up with the week's selloff as the market reopened from a holiday.

Japan's Nikkei Stock Average and China's Shanghai Composite Index were both closed, but investors continued to pile into the yen, which tends to rise in times of market stress. Sharp gains in the yen are fueling speculation that Japanese authorities could intervene directly to dampen volatility.

In other currencies, the euro was up 0.4% against the dollar at $1.1333, near its highest since October.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

February 11, 2016 09:41 ET (14:41 GMT)

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