EVIDENCE of a weakening Chinese economy and feeble data from Australia and Britain reinforced fears of a prolonged global recession on Tuesday, as policymakers groped for a co-ordinated response to the downturn.

China's inflation fell to a 17-month low of 4 per cent in October, while trade figures were expected to show slowing imports, both serving as signs of a cooling economy and dampening hopes that China's growth will help cushion the impact of the global downturn.

'It shows the Chinese economy is in a sharp slowdown - production is falling, so is demand,' said Mr Zhang Yongjun, an economist with a government think-tank in Beijing, after the inflation data.

A fresh wave of gloom gripped equity markets as investors, already spooked by worries about the darkening outlook for US corporate giants such as Goldman Sachs and Google, dumped shares in Japan, Australia and Hong Kong.

Expectations that profits will be hit hard by a long, deep recession cut short a brief spell of optimism on Monday that had been sparked by China's weekend announcement of a nearly US$600 billion (S$898 billion) stimulus package.

What began as a financial crisis last year, when bank lending dried up in the face of huge losses in the US housing market, is morphing into a broad downturn in the developed world. New powers such as China have been caught up in the domino effect.