Global equity markets have staged a late rebound along with oil prices to cut declines from two and a half year lows, but remained on pace for one of the most dismal monthly performances on record.
Oil prices tumbled once again after the International Energy Agency warned on Tuesday the market could "drown in oversupply" and on concerns about the effect of a slowing China on global economic growth.
The rout in oil prices has prompted spending cuts and layoffs in the energy sector and sparked concerns about the effect of energy loans on the banking sector.
Indexes managed to rebound from steep losses, however, as new front month March futures and Brent pared declines.
"If you look at crude prices, they are shooting right back up, so I would say you can blame whatever is in equities to crude because they are incredibly highly correlated," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
"There is no doubt that is why equities are going up."
Wall Street ended with declines of more than 1 per cent after tumbling more than 3 per cent during the trading session.
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Healthcare was the only one of the ten major sectors in positive territory while the energy sector cut losses in half to finish down 2.9 per cent.
The Dow Jones industrial average fell 249.28 points, or 1.56 per cent, to 15,766.74, the S&P 500 lost 22 points, or 1.17 per cent, to 1,859.33 and the Nasdaq Composite dropped 5.26 points, or 0.12 per cent, to 4,471.69.
The MSCI World equity index lost 2 per cent after falling as much as 3.4 per cent its lowest level since June 2013. The index has already dropped 10.5 per cent in January, which if sustained would be the worst monthly loss since October 2008, the month after Lehman Brothers went bankrupt.
There have been steeper monthly drops only five times in the MSCI World index's 28-year history, two of which occurred during the financial crisis in 2008.
US crude plunged to a low of $US26.19, its lowest since May 2003. WTI for February delivery, which expired at the end of the day, settled down 6.7 per cent to $US26.55 while Brent crude lost 3.1 per cent, to $US27.88.
European shares closed at their lowest level since October 2014, with the FTSEurofirst 300 down 3.3 per cent, to notch its biggest single-session decline in six weeks.
France's CAC and Britain's FTSE both tumbled more than 3 per cent for their worst session declines of the year and Germany's DAX lost 2.8, for its worst daily drop since the first trading day of 2016. The decline confirmed a bear market for the FTSE, down 20.1 per cent from its closing high in April.
Oil shares in Europe are down more than 14 per cent already this year and at their lowest levels since March 2003. That has been a major weight on the FTSEurofirst 300, which is down nearly 12 per cent in 2016 and more than 23 per cent from its high in April.
The safe-haven yen climbed as risk appetite soured, dragging the dollar to a one-year low, as investors trimmed the chances of more tightening by the Federal Reserve.
The US currency was down 0.6 per cent at Y116.88 after hitting a session low of Y115.96. While the US dollar fell against the yen, it was strong against emerging market currencies, compounding the misery for many countries already suffering from low oil prices.
Demand for US bonds, another asset sought in times of uncertainty, was high, with yields on benchmark 10-year Treasury notes down to 1.9911 per cent, after falling as low as 1.939 per cent, up 13/32 in price.
New Zealand share prices fell in the first few minutes of trading in response to big falls in the major markets overnight.
By 10.10 am the S&P NZX50 index was down 62 points or 1.01 per cent at 6051.73.
Forsyth Barr analyst James Bascand said the market had taken some confidence from a partial rebound in prices in the US.
"The US market rebounded late in the piece and the Chinese market had a tough one overnight," he said. "Looking at the screen there is a lot of red across it, but there is also a bit of green," he said.
"I think that we will trend down with global markets unless there is some positive news," Bascand said.
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Mining and energy stocks have been hit by a slowdown in China, the world's second-biggest economy and a major global consumer of metals and oil. "We do not see any lasting potential for these sectors to outperform and believe any recovery might be short-lived," said Christian Stocker, equity strategist at UniCredit.
"The trend of earnings estimates is declining strongly, relative valuation versus the overall market is still very high and a lasting trend reversal in commodity prices is not in sight. We recommend remaining underweight on commodity stocks."