U.S. stocks joined a renewed selloff that sent global equities to their worst monthly slump in more than three years, as confidence waned that China will be able to prop up its markets.
Concern that slowing Chinese growth will hamper global expansion reemerged as Federal Reserve officials signaled they are prepared to raise interest rates as soon as next month. The Standard & Poor’s 500 Index added to its August decline, while the Dow Jones Industrial Average capped its biggest monthly drop in five years and Chinese shares capped their worst selloff since 2008.
Oil surged into a bull market amid the biggest three-day rally since 1990, adding 27 percent to ease concern about persistently low inflation. Treasuries fell since faster price increases erode the value of long-term debt.
“It seems that the uncertainty from China’s roller coaster is not over yet,” said Guillermo Hernandez Sampere, who helps manage the equivalent of $167 million as head of trading at MPPM EK in Eppstein, Germany. “Any panic created out of this high volatility keeps investors out of the market. There’s still no clear message” on when the Fed will raise rates, he said.
The S&P 500 dropped 0.8 percent by 4 p.m. in New York, bringing its August slide to 6.3 percent, the most since May 2012. The MSCI All-Country World Index lost 0.7 percent, while European shares capped the worst month in four years. U.S. oil jumped 8.8 percent, stoking speculation that inflation may pick up, while the yen strengthened for the first time in five days.
The rout in global equities this month erased more than $5 trillion from the value of shares as Chinese policy makers tried to bolster their market amid growing concern that its economy may be in worse shape than analysts had estimated. Morgan Stanley reduced its forecast for world growth this year and next on Monday, citing weakening industrial activity in China.
Trading in U.S. equities has been volatile. Last week alone, the S&P 500 plunged the most since 2011 to enter a correction before rallying more than 6 percent over two days for its best back-to-back gains since the beginning of the bull market in 2009.

Emotional Times

The gauge tumbled out of the gates Monday, sliding as much as 1.2 percent in early trading before cutting the drop to 0.1 percent as oil rallied. The S&P 500 resumed declines in afternoon trading. The Chicago Board Options Exchange Volatility Index rose 9.1 percent, putting its monthly surge at 135 percent, the most since the data began in 1990.
“People are happy to tiptoe this week,” Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. “There’s so much emotion right now and in this environment you can come in any morning and have something out of Europe or Asia crossing us and that’s what causes us to move. True there were a lot of people who wanted to buy a correction but after last week they paused and are thinking about how long it is going to last.”
Yields on two-year Treasury notes capped a fifth month of gains after Fed Vice Chairman Stanley Fischer kept speculation alive that U.S. rates could be increased next month. The last time the yields advanced for that long was in 2006, which was also the last time the Fed boosted borrowing costs.
Bets on a September increase climbed after Fischer said over the weekend there is “good reason” to believe inflation will accelerate and that the Fed should not wait until it hits its inflation goal to act. Investor attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed’s meeting on Sept. 16-17.

Bearish Bets

China’s stocks capped their biggest two-month slide since 2008 as bearish bets in the options market climbed and Goldman Sachs Group Inc. cut its forecast for Chinese growth. The Shanghai Composite Index fell 0.8 percent, taking its slump in August to 12 percent after a 14 percent drop in July. Hong Kong’s Hang Seng China Enterprises Index also lost 12 percent in the month.
Stocks fell even as people familiar with the matter said China’s securities regulator had asked brokerages to step up their support for share prices by contributing 100 billion yuan ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks.
The cost of options contracts betting on declines in the China 50 exchange-traded fund has surged to the highest level versus bullish ones since they started trading in Shanghai six months ago.
The yen rose against 15 of its 16 major peers Monday, with the biggest gains coming versus Taiwan’s currency and the New Zealand dollar. The Japanese currency appreciated 0.4 percent to 121.23 per dollar, while the euro added 0.2 percent to $1.1211.
West Texas Intermediate crude surged to $49.20 a barrel, the highest settlement since July 21. Oil fell below $40 a barrel this month, the lowest level since February 2009, on concern slowing demand in the U.S. and China will leave the global markets oversupplied.
The Energy Information Administration on Monday trimmed its U.S. production forecast by as much as 130,000 barrels a day for the first five months of the year as it switches to a new survey, the agency said on its website.
The Bloomberg Commodity Index jumped 1.8 percent Monday, bringing its three-day gain to 6.8 percent as oil led other raw materials higher. Metals trading was muted with trading in London closed for a U.K. holiday.