U.S. stock futures sink as China index takes another pounding

— -- Pessimism about the economy reasserted itself in financial markets Wednesday, with U.S. stocks looking to fall at the opening.

Stock futures were sharply lower in the U.S., once again following the lead of overseas markets that are uneasy about a global recovery.

World stocks sank, with European indexes spooked by a 5% drop in China that strengthened fears stocks have become overpriced after this year's powerful rally.

With a lack of new economic data across most of Europe, investors focused on the heavy losses in Asia, driven by fears that the Chinese government's easy credit policy to support the economy will not fuel a sustainable recovery there.

Germany's DAX fell 65.60 points, or 1.3%, to 5,185.14 while Britain's FTSE 100 dropped 41.11 points, or 0.9%, to 4,644.67. France's CAC-40 fell 31.02 points, or 0.9%, to 3,419.67.

In Shanghai, the main index plunged more than 5% at one point before closing down 125.30 points, or 4.3%, to 2,785.58.

The drop came on the heels of a steep fall in world markets Monday, when investors were dismayed by weakness in American consumer spending. That seemed to many to suggest an end to the five-month rally that has boosted some benchmarks more than 50%.

"We've had a very strong run and people are a little unnerved by what's going on in China, so it seems like a good opportunity to take some money off the table," said Adrian Mowat, chief Asian and emerging market equities strategist at JP Morgan in Hong Kong.

China's benchmark index has lost nearly 20% since Aug. 4 on worries about corporate profits, the strength of China's recovery and possible changes in Beijing's easy credit policy that has helped to fuel the bull run in Chinese stocks this year.

"Investors are afraid there are no fundamentals to support the rally," said Cai Xiang, a Sinolink Securities analyst in the western city of Chengdu.

Stuart Bennett, senior foreign-exchange strategist at Calyon in London, said European stocks may be overreacting to the Chinese market movements. He said losses may be short-lived, considering the speed with which Monday's sharp drop was quickly stabilized on Tuesday.