Global markets fell on Tuesday after twin gauges of China’s economic health both gave dismal readings on Tuesday, renewing fears about slow growth in the world’s second largest economy.

The official manufacturing purchasing managers index hit a three-year low as it fell to 49.7 in August, down from 50.0 a month ago. The PMI’s breakeven point of 50 separates expansion from contraction. The government also announced services PMI fell to 53.4 from 53.9 in August.

Another, private survey of the mainland’s key manufacturing sector, the Caixin/Markit PMI, fell to 47.3 in August, down from 47.8 in July, and reaching a more than six-year low. The official PMI is focused on large companies and state-owned enterprises, while the Caixin index reflects data from small and medium-sized firms.

The bad news, while expected, still hurt Asian and European stock markets on Tuesday morning, and left analysts pondering how Beijing can revive the sluggish economy to meet its GDP target of “about 7 per cent” in 2015, the slowest pace of growth for the PRC in 25 years.

Prices fell more than 3 per cent on Tuesday after official data showed China’s giant manufacturing sector, the engine powering the world’s biggest energy consumer, contracted at the fastest pace in three years.

In London, just one blue-chip was in positive territory as the FTSE 100 got caught up in a renewed global equities sell-off. The FTSE 100 was down 132.35 points, or 2.12 per cent, to 6,115.59 as investors hit the sell button after the long weekend. In Germany the Dax was off 2.7 per cent and Paris’s Cac was 2.2 per cent lower.

“As it stands we’ve pretty much wiped off any of the gains we saw last Friday … it does seem like this could be another return to the lows we saw last week, particularly if we don’t see any effects from the Chinese interventions any time soon,” said Brenda Kelly, head analyst at London Capital Group.

It also pushed oil prices lower, with Brent crude down more than 4 per cent to $51.88 after three days of hefty gains. Investors took profits after Brent and US crude both soared more than 8 per cent on Monday, traders said.

On Wall Street, the Dow Jones Industrial Average dropped more than 350 points to 16,162.81. The wider S&P 500 slid 1.6 per cent to 1,941.17 following the index’s biggest monthly slide since May 2012 in August. The tech-heavy Nasdaq was down 86 points to 1.79 per cent.

US markets were also dragged lower PMI data showed that manufacturing in the US hit a 22-month low of 53,while job creation in the sector was at its lowest level in more than a year.

In China, a decline in both new orders and new export orders suggests both domestic and external demand remains weak, and GDP may fall below 6.5 per cent in the third quarter, said Li-Gang Liu and Louis Lam, economists in Hong Kong for ANZ.

“However, we believe that further aggressive monetary easing and proactive fiscal policy, along with financial liberalisation, are needed to maintain GDP growth at around 7 per cent,” they wrote in a note on Tuesday, maintaining a 2015 GDP forecast of 6.8 per cent.

“Recent volatilities in global financial markets could weigh on the real economy, and a pessimistic outlook may become self-fulfilling,” said He Fan, chief economist at Caixin Insight Group. Caixin, a business media group, sponsors the index compiled by Markit Economics.

The gloomy factory readings follow severe losses in the Chinese stock markets, devaluation of the yuan, and deadly explosions and severe disruptions to a key northeast China port, but one economist said China’s PMI weakness was no “cause for alarm” and only temporary.

China’s economy “is increasingly driven by service sector activity, which still appears healthy,” said Julian Evans-Pritchard, a Singapore-based economist at Capital Economics. “As such, signs of weakness in manufacturing are less of a concern than they used to be.

“But in any case, we suspect the latest bout of weakness mostly reflects temporary disruptions to factory output due to restrictions on polluting activities ahead of this week’s Victory Day parade in Beijing rather than a deterioration in underlying economic momentum,” said Evans-Pritchard, who predicts a sustained rebound in economic activity over the coming quarters.

* South Korean exports fell by almost 15 per cent in August, in a stark manifestation of the effect of the Chinese slowdown on the world economy (Richard Lloyd Parry writes).

In the biggest drop for six years, exports fell 14.7 per cent to $39.3 billion, marking the eighth consecutive month of decline. The latest figures outstripped even the most pessimistic forecasts by economists, and prompted them to revise downwards their predictions for South Korean growth this year.

The biggest losers were shipyards, car makers, as well as manufacturers of petroleum products, who have also been hit hard by the drop in global oil prices.