RIO Rio Tinto Plc

News of a possible nuclear test in North Korea and lingering concerns over China kept investors cautious Wednesday, sending global stocks lower again in a shaky start to the year.

The Stoxx Europe 600 was down 0.9% in early trade, led lower by the basic resources and energy sectors after Brent crude fell to an 11-year low.

Investors shed risky assets after North Korea said it successfully staged its first test of a more powerful form of nuclear weapon Wednesday. Meanwhile, a weaker Chinese currency and lackluster services data from China added to mounting concerns over its economy and financial markets.

For European equities "China is the only story," said Tristan Abet, investment strategist at Louis Capital Markets. "If you're a bear on China and the yuan, you can't be bullish on Europe," he said.

China's central bank fixed the yuan at a five-year low against the U.S. dollar on Wednesday.

The Shanghai Composite Index recovered 2.3% Wednesday, but its near 7% plunge at the start of the week has left investors on edge.

Australia's S&P ASX 200 fell 1.2%, while Hong Kong's Hang Seng Index fell 1%, deepening a week of losses for both indexes.

Japan's Nikkei Stock Average was down 1%, with the yen nearing a three-month high against the dollar as investors sought out havens. The dollar was last down 0.5% against the yen at ¥ 118.5430.

The euro was down 0.1% against the dollar at $1.0732.

In commodities, Brent crude oil was down around 2% at $35.72 a barrel, hovering near an 11-year low reached in December ahead of weekly U.S. crude inventory and production data later in the day. Investors continued to weigh recent tensions between Saudi Arabia and Iran as well as the latest manufacturing releases from China and the U.S.

European energy stocks were last down 1.9%, while the basic materials sector was down 2.7%. Shares in BHP Billiton were down 4.1% and Rio Tinto PLC lost 3.5%.

Copper was down 0.4% at $4625 a metric ton in London trade. Gold was up 0.3% at $1,081.20 a troy ounce.

Wall Street closed a touch higher on Tuesday, as markets steadied after a sharp selloff earlier in the week.

Just three days in, 2016 is turning out to be a shaky trading year. Investors are grappling with a rising dollar, mounting geopolitical tensions in the Middle East, pressure on commodities prices and turmoil in Chinese markets.

"The slowdown in China and its effect more broadly on emerging markets will still be a major theme in the global equity market this year," said David Lafferty, chief market strategist at Natixis Global Asset Management

Later Wednesday, investors will parse the ADP employment report and U.S. trade gap data for clues on the health of the U.S. economy.

Investors will also examine minutes from the U.S. Federal Reserve's December policy meeting, where officials voted to raise benchmark interest rates for the first time in nearly a decade.

If there is any more detail around what Janet Yellen means by a "gradual" path for future interest rate increases, that will definitely have implications for equity markets over the course of the year, said Mr. Lafferty.

"Any indication that they're in a hurry to raise rates [will be] bad for stocks," he said.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

January 06, 2016 05:15 ET (10:15 GMT)

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