SYDNEY (REUTERS) - World stock markets plunged on Monday (March 9) as panicked investors fled to bonds to hedge the economic shock of the coronavirus, and oil plunged 30 per cent after an all-out price war erupted aong the world's biggest producers.

Italian stocks initially failed to open Monday along with other European markets. When the FTSE MIB index did open, it tanked 11 per cent.

Among the worst affected countries, Italy extended quarantine measures restricting the movement of more than 16 million people in the northern regions on Saturday, provoking panic among residents.

Earlier, European markets tanked as soon as trading began. The pan-European STOXX 600 fell 6.1 per cent by 0807 GMT, entering bear market - commonly defined as a 20 per cent drop from all-time highs.

London's commodity-heavy FTSE 100 plunged 8.5 per cent to a three-year low as oil majors BP and Royal Dutch Shell tumbled more than 20 per cent. Shares of Britain’s Tullow Oil, an oil and gas exploration company, lost 57 per cent.

Shares in Frankfurt sank 8.1 per cent while stocks in Paris fell 4.5 per cent.

Several Asian markets suffered their worst falls since the 2008 global financial crisis.

Japan's Nikkei fell 5.1 per cent at the close while Australia's commodity-heavy market dived 7.3 per cent and South Korea's Kospi index dropped 4.2 per cent.

The Hong Kong and China markets were also hammered. The Hang Seng index fell 4.2 per cent while the Shanghai Composite index dropped 3 per cent.

Singapore's Straits Times Index closed down 178.61 points or 6 per cent to 2,782.37.

The world's top oil exporter plans to raise its production significantly after the collapse of Opec's supply cut agreement with Russia, a grab for market share reminiscent of a drive in 2014 that caused prices to slump by around two thirds.

US West Texas Intermediate crude dropped more than 23 per cent to US$31.73 per barrel as of 08:35 GMT on Monday, having earlier tumbled to a low of US$27.34 per barrel. International benchmark Brent crude futures also plummeted 20 per cent to US$35.90 per barrel.

The safe-haven yen surged 2.5 per cent to 102.80 per US dollar. The Mexican peso was down 4.3 per cent as investors dumped emerging market currencies with exposure to oil.

"Today's price action puts at risk the fiscal health of the vast majority of sovereign producers and budget cuts and increased debt loads are now looming in the event of a prolonged period of low prices," warned Helima Croft, head of global commodity strategy at RBC Capital Markets.

"For the most politically and economically fragile producer states, the reckoning could be severe."

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There were also worries that US oil producers that had issued a lot of debt would be made uneconomic by the price drop.

"The scale of the collapse shows that any hopes of a temporary respite were in vain," said Sean Callow, a senior FX strategist at Westpac. "The notion that overweight equities is the only real option in a world of super-low rates now seems to be from "The Time Before"."

"US officials have barely moved beyond platitudes about 'strong fundamentals' so there is surely plenty more room for markets to price in major damage to the US economy."

The number of people infected with the coronavirus topped 107,000 across the world as the outbreak reached more countries and caused more economic carnage.

Italy's markets are sure to come under fire after the government ordered a lockdown of large parts of the north of the country, including the financial capital Milan.

"After a week when the stockpiling of bonds, credit protection and toilet paper became a thing, let's hope we start to see some more clarity on the reaction," said Martin Whetton, head of bond & rates strategy at CBA.

"Dollar bloc central banks cut policy rates by 125 basis points, not as a way to stop a viral pandemic, but to stem a fear pandemic," he added, while noting many had little scope to ease further.

BOND BUBBLE

Markets are fully priced for at least a half-point rate cut from the Federal Reserve at its scheduled policy meeting on March 18, following last week's emergency easing, and a move toward zero not long after.

The European Central Bank meets on Thursday and will be under intense pressure to act, but rates there are already deeply negative.

"The onus is falling, perhaps inevitably on the actions of governments to abandon budget surpluses and reinvigorate the demand side of the economy," said Whetton.

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Urgent action was clearly needed with data suggesting the global economy slid into recession this quarter. Figures out from China over the weekend showed exports fell 17.2 per cent in January-February, from a year earlier.

Analysts at BofA Global Research estimated the latest sell-off had seen US$9 trillion in global equity value vaporised in nine days, while the average 10-year yield in the developed world hit 16 basis points, the lowest in 120 years.

"The clearest outcome of the exogenous Covid-19 shock is a collapse in bond yields, which once panic fades can induce huge rotation to 'growth stocks' and 'bond proxies' in equities," they wrote in a client note.

Yields on 10-year US Treasuries plunged to a once-unthinkable 0.51 per cent, having halved in just eight sessions.

Yields on the 30-year long bond dived 35 basis points on Friday alone, the largest daily drop since the 1987 crash, and were last down further at 1.13 per cent.

The tumble in yields and Fed rate expectations has pulled the rug out from under the dollar, sending it crashing to the largest weekly loss in four years.

The US dollar extended its slide in early Asia to reach 103.55 yen, depths not seen since late 2016, while the euro shot to the highest in over eight months at US$1.1387.

Spot gold rose 0.7 per cent to US$1,686.22 per ounce by 0325 GMT, having touched its highest since December 2012 at US$1,702.56 earlier in the session.