By DAMIAN J. TROISE and ALEX VEIGA

Stocks around the world fell sharply on Friday on fears that the already sluggish global economy could slip into recession as central banks stepped up pressure with additional interest rate hikes.

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The Dow Jones Industrial Average fell 1.6%, closing at its lowest level since late 2020. The S&P 500 fell 1.7%, near its 2022 low set in mid-June, while the Nasdaq fell 1.8%.

The selloff capped another tough week on Wall Street, leaving the major indexes with their fifth weekly loss in six weeks.

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Energy prices closed sharply lower as traders worried about a possible recession. Treasury yields, which affect mortgage and other types of debt rates, are at multi-year highs.

European stocks fell as fast or more after preliminary data showed the biggest monthly contraction in business activity since the start of 2021. Force its central bank to raise rates more quickly.

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The Federal Reserve and other central banks around the world raised interest rates aggressively this week in hopes of taming high inflation, promising bigger hikes in the future. Such measures put the brakes on economies by design, in the hope that slower purchases by households and businesses will ease inflationary pressures. But they also threaten recession, if they rise too far or too early.

In addition to Friday’s disappointing data on European business activity, a separate report suggested that U.S. activity was also still contracting, though not as badly as in earlier months.

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“Financial markets are now fully absorbing the Fed’s strong message that it will not back down from its fight against inflation,” Douglas Porter, chief economist at BMO Capital Markets, wrote in a research report.

U.S. crude oil prices fell as much as 5.7 percent to their lowest level since early this year on fears that a weak global economy will burn less fuel. Cryptocurrency prices also fell sharply as higher interest rates hurt investments that are seen as the most valuable or riskiest.

Gold even fell globally, as high-yielding bonds made investments that paid no interest look less attractive. Meanwhile, the US dollar is rising faster than other currencies. That could hurt the profits of American companies with many overseas businesses, as well as put financial pressure on much of the developing world.

The S&P 500 fell 64.76 points to 3,693.23, its fourth straight decline. The Dow, which was down more than 800 points at one point, closed down 486.27 points at 29,590.41. The Nasdaq fell 198.88 points to 10,867.93.

Smaller company stocks did even worse. The Russell 2000 closed down 42.72 points, or 2.5 percent, at 1,679.59.

More than 85% of stocks in the S&P 500 closed in the red, with technology companies, retailers and banks among the biggest weights on the benchmark index.

The Federal Reserve on Wednesday lifted its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. At the beginning of the year, it was virtually at zero. The Fed also released a forecast that suggested its benchmark rate could be 4.4 percent by the end of the year, a full point higher than it had envisioned in June.

Treasury yields have risen to multi-year highs as interest rates rise. The yield on the 2-year Treasury, which tracks expectations of Federal Reserve action, rose to 4.20% from 4.12% late Thursday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.69 percent from 3.71 percent.

Goldman Sachs strategists say the majority of their clients now see a “hard landing” that inevitably takes the economy down sharply. For them, the only question is the timing, intensity and length of a potential recession.

High interest rates hurt all types of investments, but stocks can hold up as long as corporate profits grow strongly. The problem is that many analysts are starting to cut their forecasts for future earnings due to concerns about higher rates and a possible recession.

“Increasingly, market psychology has shifted from concerns about inflation to concerns that, at the very least, corporate profits will decline as economic growth slows demand,” said Quincy Crosby, LPL. Chief Global Strategist of Financial.

In the US, the jobs market has been remarkably stable, and many analysts believe the economy picked up in the summer quarter after contracting in the first six months of the year. But encouraging signs also suggest the Fed may have to raise rates even higher to achieve the cooling needed to lower inflation.

Some key sectors of the economy are already weakening. Mortgage rates have hit a 14-year high, causing existing home sales to drop by 20% in the past year. But other sectors that perform best when prices are low are also hurting.

In Europe, meanwhile, an already weak economy is dealing with the effects of war on its eastern front following Russia’s invasion of Ukraine. The European Central Bank is raising its key interest rate to combat inflation even as the region’s economy is already expected to sink into recession. And in Asia, China’s economy is still struggling with draconian measures aimed at limiting COVID infections that have also hurt business.

While Friday’s economic reports were discouraging, few on Wall Street saw them as enough to prompt the Fed and other central banks to soften their stance on raising rates. So they only fueled fears that rates would continue to rise against already sluggish economies.

Economics writer Christopher Rogaber and business writers Joe McDonald and Matt Ott contributed to this report.

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