Traders on edge as Dow plunges more than 1,000 points,

S&P/TSX composite index plunges more than 260 points

The dread that gripped equity markets earlier in the week suddenly re-emerged mid-Thursday as U.S. and Canadian stocks plunged on concern that rising interest rates will drag down economic growth.

The S&P/TSX composite index in Toronto plunged more than 260 points, and more than 1.7 per cent, in trading Thursday.

In the U.S., stocks fell to two-month lows after a nine-day swoon wiped out almost 9 per cent in the S&P 500. The index’s 3.75 per cent drop Thursday wiped out its gains for the year. The Dow plunged more than 1,000 points.

The Cboe Volatility Index was more than double its level a week ago. Ten-year Treasury yields retreated from close to their four-year highs as stocks fell, while the yen found traction as a haven from the stock turmoil.

Traders remain on edge after the resurgent threat of inflation and higher bond yields helped trigger the burst of volatility and a pullback across the overheated global equity market.

Bulls may have to question the wisdom of buying the dip when more selling by speculators may be imminent. This week’s Treasury auctions have under- whelmed, raising the possibility that the debt sell-off could steepen. Investors are also facing the prospect of Fed tightening, which could cool growth.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” said Doug Cote, chief market strategist at Voya Investment Management.

“They could be in full panic mode right now.”

Markets were also hit overseas. U.K. gilts sold off and the pound rose after the Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated. The euro fluctuated as European Central Bank member Jens Weidmann said the bank will monitor the impact of the currency on inflation.

The yuan earlier fell the most since the currency’s devaluation in August 2015 after China reported a much narrowerthan-expected trade surplus as imports jumped.

Traders remain on edge after the resurgent threat of inflation and higher bond yields helped trigger the burst of volatility