NEW YORK/LONDON (Reuters) - Dealmakers celebrating their third-strongest year on record are fretting 2019 will herald a steep drop in mergers and acquisitions worldwide, as market jitters and economic uncertainty take their toll.

Shire branding is seen outside their offices in Dublin, Ireland, April 25, 2018. REUTERS/Clodagh Kilcoyne

The fourth quarter of 2018 is on track to end with the volume of global M&A activity down 27 percent year-on-year, and down 16 percent from the third quarter, at $724 billion, according to Refinitiv data. A stock market selloff and concerns over the United States’ escalating trade row with China weighed on dealmakers’ confidence.

This is despite global M&A volumes reaching the third highest year on record in 2018, up 20 percent from a year ago to $3.91 trillion in announced transactions, making it the second- strongest year for dealmaking since the 2008 financial crisis.

"Stock market volatility was heavily prevalent in the final few months of the year. Any deals that were being discussed became harder for buyers and sellers to agree on the right price, causing several transactions to stall," said Chris Ventresca, JPMorgan Chase & Co's JPM.N global co-head of M&A.

The S&P 500 languished at 15-month lows this week, as disappointing earnings reports added to the gloom after the U.S. Federal Reserve quashed hopes of a toned-down approach to its interest rate trajectory.

The European Central Bank has ended its stimulus scheme, adding another layer of uncertainty to the region. China and other major economies in the region have also slowed.

“People view a recession as likely to occur sooner rather than later,” said Jeffrey Marell, co-head of law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP’s M&A practice.

Among this year's biggest deals were Japanese drug maker Takeda Pharmaceutical Co's 4502.T $64 billion deal to buy London-listed peer Shire Plc SHP.L, Walt Disney Co's DIS.N sweetened $71 billion bid to buy the bulk of Twenty-First Century Fox Inc's FOXA.O film and television assets, and U.S. health insurer Cigna Corp's CI.N $52 billion deal to buy pharmacy benefits manager Express Scripts Holding Co.

The United States made up the biggest part of the global M&A market in 2018, with activity in the region rising 32 percent year-over-year to $1.7 trillion, according to Refinitiv.

Announced deals in Europe rose 32 percent to $975 billion in 2018, while M&A in Asia-Pacific fell 2 percent to $871 billion.

"Undoubtedly there is uncertainty in Europe given Brexit, the end of quantitative easing and the risk of weak earnings, but the long-term strategic goals of our clients remain unchanged," said Pier Luigi Colizzi, Barclays Plc's BARC.L head of M&A for Europe and the Middle East.

IPO RUSH

Also weighing on M&A is the rush of technology companies such as Uber, Lyft, Slack and Pinterest to get ahead of a potential economic rout by launching initial public offerings rather than seeking potential acquirers.

“In a frothy IPO market, when public market valuations are high, it is more challenging for acquirers to justify the prices required to acquire public companies, or to present a compelling enough alternative to private companies to take them off what they may perceive as a very attractive IPO path,” said George Boutros, CEO of Qatalyst Partners, a technology-focused investment bank.

Private equity firms could also have a hard time clinching acquisitions in 2019, if a rout in the leveraged finance markets in December continues, dealmakers say.

However, should debt markets stabilize, cash-rich private equity firms could have an edge in hunting for acquisition bargains in a suppressed stock market.

"Private equity firms are less impacted by the volatility and the turbulence," said Jeff Raich, co-president of investment bank Moelis & Co MC.N.

While it is possible that the M&A slowdown reverses in 2019 - should economic sentiment pick up - dealmakers are preparing for leaner times.

"There are early signs of a downturn as 2018 draws to a close, and it is probable that we are at the end of the up-cycle that started in 2014," said Robert Leitao, global head of advisory at Rothschild & Co ROTH.PA.