WASHINGTON — Fears escalated Monday that the global economy could struggle more than expected this year — a prospect that contributed to a plunge in financial markets.

The anxiety was heightened by reports that manufacturers extended their slumps last month in the United States and China, the world's two largest economies. Factory activity contracted for a second straight month in the United States and for a 10th straight month in China.

By midafternoon, the Dow Jones industrial average had sunk more than 400 points — over 2 percent — though the fall was also due in part to rising tensions in the Middle East. Chinese stocks fell 7 percent before trading was halted.

The DAX index in Germany, whose export-led economy is sensitive to China's prospects, tumbled 4.3 percent. Britain's FTSE 100 fell 2.4 percent, France's CAC 40 2.5 percent.

Troubles continue

The manufacturing data made clear that the troubles that weighed on U.S. factories last year have yet to ease. Sluggish economies in major markets — from China to Europe to Japan — have depressed U.S. exports. That trend has been worsened by a strong dollar, which has made U.S. goods more expensive for foreigners.

Not all the news was bad. A cheaper euro has helped European manufacturing, which expanded at the fastest pace in 20 months in December, according to data firm Markit.


Still, China's persistent sluggishness may be causing broader damage than previously thought, analysts say. China's government is trying to shift its economy toward domestic consumption and away from a reliance on exports and investment in roads, factories and real estate.

Yet that transformation has proved difficult: China's growth in the July-September quarter fell to 6.9 percent from a year earlier, the slowest pace in six years.

China's deceleration has been hugely disruptive for countries that have long exported commodities such as oil, copper and other metals to the Chinese market. China consumes, for example, about 60 percent of the world's iron ore, which is used to make steel. China's declining appetite for such commodities has slowed growth in Australia, Brazil and Malaysia, among other economies.

The U.S. economy has also taken a hit: Its exports to China fell 4 percent in the first 10 months of last year compared with the same period in 2014.

"The global spillovers from China's reduced rate of growth ... have been much larger than we would have anticipated," Maury Obstfeld, chief economist at the International Monetary Fund, said in an interview Monday.

Daniel Meckstroth, chief economist at MAPI, a manufacturing research group, said that many commodity-exporting countries, such as Australia, Malaysia and Chile, have also been forced to reduce their purchases of U.S. goods. They "don't have the export revenue, so they can't import from the rest of us," Meckstroth said.