World stock markets tumbled and oil plumbed new lows Thursday as investors feared for the global economy on signs of a dramatic slowdown in powerhouse China.

European stock markets plunged in morning deals following a heavy sell-off across Asia triggered by a suspension to trading in China, the world's second biggest economy and key driver of commodities consumption.

Wall Street had already faltered on Wednesday, with dealers spooked by a World Bank report cutting its global growth forecasts again.

At about 0915 GMT, London's benchmark FTSE 100 index was down a hefty 2.8 percent compared with Wednesday's close.

Leading eurozone markets Frankfurt and Paris were down by more than three percent, with Madrid and Milan faring only slightly better.

The smaller Nordic markets were down more than four percent.

"Equity markets are continuing their steep losses... with investor sentiment being pressured by various factors," said Lukman Otunuga, research analyst at trading group FXTM.

"These include the resumption of fears over global growth following weak data from China... while increased geopolitical tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets."

The week's geopolitical developments have combined to heap further pressure on oil prices, sending New York's main crude contract sliding Thursday to a 12-year low at $32.10 a barrel.

But gold was benefiting from its status as a haven investment, while a "rush to the safety of sovereign bonds is underway," noted Brenda Kelly, head analyst at London Capital Group.

"The (German) bund is helping the euro retrace higher against the dollar and the pound," she added in a note to clients.

China suspension

Chinese markets were suspended Thursday for the second day this week after they fell more than seven percent, leading an Asia-wide sell-off as Beijing weakened the value of the yuan currency by the most since August.

Chinese markets were suspended on January 7 for the second day this week after they fell more than seven percent. Photo: AFP

Regulators in China called an end to trade within just 30 minutes of opening after the central bank weakened the value of its yuan currency by 0.51 percent against the dollar.

The drop was the biggest since August when the value was cut by five percent in a week -- sparking weeks of global market turmoil over worries Beijing did not have a handle on its economic crisis. The yuan is now at its weakest in five years.

Trading was halted just before 10am (0200 GMT) as a "circuit breaker" kicked in after the benchmark Shanghai index slumped seven percent and the Shenzhen composite index, which tracks stocks on China's second exchange, tumbled 8.2 percent.

The stop -- activated when markets fall more than seven percent -- was also triggered on Monday, its first day of operation.

The carnage in China seeped through to other Asian bourses. By the end of trading Thursday, Hong Kong had slumped more than three percent and Tokyo shed 2.2 percent.

In the United States meanwhile, minutes of the Federal Reserve's December meeting showed that policymakers foresaw only a "gradual" series of interest rate hikes amid weak inflation.

The US central bank last month undertook its first interest rate hike in more than nine years, a long-flagged move that signalled the end of crisis-era monetary policy.

"It was initially expected that the decision to raise the US rates last month was a decision taken in confidence," added analyst Otunuga.

"However the statement released last night suggested that the decision to finally raise the US interest rates was a very close call."

Key figures around 0915 GMT 

London - FTSE 100: DOWN 2.8 percent at 5,902.1

Paris - CAC 40: DOWN 3.2 percent at 4,336.9

Frankfurt - DAX 30: DOWN 3.7 percent at 9,838.5

EURO STOXX 50: DOWN 3.3 percent at 3,036.5

Shanghai - composite: DOWN 7.0 percent at 3,125.00 (close)

Tokyo - Nikkei 225: DOWN 2.3 percent at 17,767.34 (close)

New York - Dow: DOWN 1.5 percent at 16,906.51 (close)

Euro/dollar: UP at $1.0799 from $1.0782 late Wednesday

Dollar/yen: DOWN at 117.55 yen from 118.49 yen