Worries over the state of the U.S. economy weighed on global stocks again Wednesday while the Swiss franc dropped dramatically after the country's central bank cut its main interest rate target to halt the export-sapping appreciation of the currency.
The Swiss franc has been heavily in demand in recent weeks through its status as a safe place for investors to park their cash. Investors have grown increasingly risk-averse as the year has progressed amid concerns over Europe's debt crisis.
The U.S. debt debate and the risk of a default has accelerated in recent weeks that flight to safety. Gold, another safe haven investment, hit a new record of $1,661 on Wednesday.
In a surprise announcement, the Swiss National Bank lowered its target range for interest rates on lending between banks to 0.0-0.25 percent from 0.0-0.75 percent. Lowering interest rates can help reduce a currency's value against other currencies by lessening demand for investments and assets in that currency.
The bank also said it would "very significantly" increase liquidity into the Swiss franc money market and warned that the recent appreciation of the currency has dented the economy's prospects.
"Given the strength of the currency the economic damage must be considerable _ we are already starting to see Swiss companies reporting profits lower because of the uncompetitiveness of the domestic currency," said Louise Cooper, markets analyst at BGC Partners.
Those companies will be relieved by the short-term reaction to the central bank's move. By late morning London time, the euro was up 2.3 percent to 1.113 francs, while the dollar traded 1.2 percent higher at 0.7750 franc.
In stock markets, the main point of interest remains the U.S. economy after a run of grim economic data stoked fears that the world's largest economy is growing far slower than anticipated and may be heading back toward recession.
A weak manufacturing survey from the Institute for Supply Management on Monday brought those concerns to the fore and investors will be looking to see if an equivalent report into the services sector later is similarly disappointing.
This week's raft of U.S. economic data culminates with Friday's closely-watched payrolls figures for July, which often sets the stock market tone for a week or two after their release.
Since stocks are an indicator of expectations for economic activity, the past days' massive losses are worrying.
"The risk of further moves to the downside is starting to build," said Ben Critchley, sales trader at IG Index.
In Europe, the FTSE 100 index of leading British shares was down 1.1 percent at 5,657 while France's CAC-40 fell 0.6 percent to 3,502. Germany's DAX was 1 percent lower at 6,730.
Wall Street was poised for a modest recovery from a string of sharp losses, though analysts said its actual performance will likely be influenced by the ISM's services sector report and monthly figures from the ADP private payrolls firm.
Dow futures were up 0.5 percent at 11,861 while the broader Standard & Poor's 500 futures rose 0.6 percent to 1,255.
The euro was up 1 percent at $1.4322, helped partly by eurozone retail sales figures showing a surprisingly big 0.9 percent rebound in June.
That helped offset worries that Italy and Spain are getting sucked into Europe's debt crisis. The yield on Italian ten-year bonds briefly hit a euro-era high of 6.21 percent. Since then though, it has eased to 6.07 percent as investors await an economic statement from Italian premier Silvio Berlusconi.
While the dollar is tanking against the euro, it is holding up better against the yen as investors are wary of the possibility of a market intervention by monetary authorities in Tokyo to weaken the Japanese currency.
The dollar fell as low as 76.29 yen Monday, just shy of its record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami. The yen's strength in March prompted the world's leading central banks to join together to weaken the currency.
By late morning London time, the dollar was only 0.2 percent lower at 77.14 yen.
The yen's strength is another cause for concern for Japan's major exporters and the Nikkei 225 slid 2.1 percent to 9,637.14, its lowest close in five weeks.
Elsewhere in Asia, Hong Kong's Hang Seng shed 1.9 percent to 21,002.72 while South Korea's Kospi tumbled 2.6 percent to 2,066.26. China's Shanghai Composite Index fared somewhat better, falling less than 0.1 percent to 2,678.49.
Oil prices continued to drift lower on fears over the U.S. economy. Benchmark oil for September delivery was down 51 cents to $93.28 a barrel in electronic trading Wednesday on the New York Mercantile Exchange.
Kelly Olsen in Seoul, South Korea contributed to this report.