LONDON, Oct 8 — World stock markets sank today on economic worries over China and Italy, and alongside the prospect of rising US interest rates, dealers said.

Asia and Europe also slid on the coat-tails of Wall Street, where another strong US jobs reading has further fanned expectations the Federal Reserve will hike rates at a quicker pace than previously thought.

Shanghai spearheaded the retreat, diving almost four per cent on fears as mainland investors returned from a week-long break — and despite another cut in the amount of cash the country’s commercial banks must keep in reserve.

In Europe, Milan stocks tumbled 2.3 per cent on concern that Italy could face a sovereign debt crisis, after its populist government passed a purse-busting budget last week to the chagrin of the EU.

Elsewhere, London stocks lost 0.6 per cent, while both Frankfurt and Paris each lost 0.9 per cent in value while Tokyo was shut.

‘All-round sell-off’ -”It’s an all-round sell-off: the prospect of high interest rates from the Fed could not come at a worse time, given the slowdown in the Chinese economy and other emerging economies as well as the Italian debt and fiscal crisis,” CMC Markets analyst David Madden told AFP.

The People’s Bank of China had lowered the required reserve ratio (RRR) as it looks to shore up the economy after a series of weak data, amid Bejing’s trade war with Washington.

China’s central bank says however that the move will pump more than US$100 billion into financial markets.

"The fact the authorities are cutting the amount of capital banks need to hold in relation to their loan book suggests they are worried about the economy,” noted Madden.

"It gives off the impression the country is gearing up for a protracted trade spat.”

European investors also remain preoccupied with worries that Italy could dive headlong into a full-blown debt crisis.

Rome had sparked disquiet last week by unveiling a budget that set the public deficit at around 2.4 per cent of gross domestic product (GDP) for the next three years, earning a rebuke from Brussels and forcing it to row back slightly.

Italy row reignites

"Matters were made worse on Monday by the reigniting of the conflict between Italy and the EU over the former’s budget deficit,” said Spreadex analyst Connor Campbell.

"The European Commission had written to Italian economy minister Giovanni Tria outlining its ‘serious’ concerns about the budget, only for Deputy Prime Minister Luigi Di Maio to respond that the government will ‘not retreat’ over its spending plans.

"This resulted in another round of heavy losses in Europe.”

Back in Asia, Shanghai was also hit after a week in which China was accused of using microchips in computer equipment sold in the US as part of a drive to steal technology secrets.

Wall Street’s three main indices tanked despite news that unemployment had hit a 49-year low and wages saw healthy gains.

The report, which followed a slew of strong indicators on the world’s top economy, saw yields on benchmark 10-year Treasuries rise for the third straight day, hitting a fresh seven-year high with the Fed expected to stick to its rate hike drive.

Analysts said the sudden surge in interest rates had deepened worries about higher inflation and an uptick in costs for loans and mortgages.

Oil prices meanwhile fell sharply after the crown prince of major producer Saudi Arabia said it could access spare capacity to fill in for any shortages from Iran when US sanctions are imposed on the country next month.

Key figures around 1120 GMT -MILAN — FTSE MIB: DOWN 2.3 per cent at 19,876.73 points

London — FTSE 100: DOWN 0.6 per cent at 7,274.50

Paris — CAC 40: DOWN 0.9 per cent at 5,309.49

Frankfurt — DAX 30: DOWN 0.9 per cent at 12,002.95

EURO STOXX 50: DOWN 0.8 per cent at 3,317.83

Hong Kong — Hang Seng: DOWN 1.4 per cent at 26,202.57 (close)

Shanghai — Composite: DOWN 3.7 per cent at 2,716.51 (close)

Tokyo — Nikkei 225: Closed for a holiday

New York — Dow Jones: DOWN 0.7 at 26,447.05 (close)

Euro/dollar: DOWN at US$1.1476 from US$1.1524 at 2100 GMT

Pound/dollar: DOWN at US$1.3056 from US$1.3120

Dollar/yen: DOWN at 113.30 from 113.72 yen

Oil — Brent Crude: DOWN US$1.06 at US$83.10 per barrel 

Oil — West Texas Intermediate: DOWN 79 cents at US$73.55 — AFP