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© Provided by ABC Business The Dow and S&P 500 suffer their worst day since October 2020. (ABC News: John Gunn)

Australian shares are set to begin their day sharply lower, following heavy losses across US and European markets overnight.

Investors have turned more cautious on fear of overvalued stocks and the economic impact of the COVID-19 pandemic.

ASX futures were down 77 points (-1.2pc) to 6,628, by 8:10am AEDT.

The Australian dollar had fallen (-1.2pc) to 76.52 US cents due to a stronger US greenback.

Wall Street’s was weighed down in part by a slump in Boeing and hedge funds selling off long positions to cover a “short squeeze”.

Shares of videogame retailer GameStop (+138pc) and cinema chain AMC Entertainment (+302pc) each more than doubled on Wednesday, continuing a torrid run higher over the past week, as amateur investors again piled into the stocks, forcing short-sellers such as Citron to abandon their losing bets.

“Fears are circulating that some investment funds might be quickly closing out positions as a way of shoring up their cash positions,” said David Madden, market analyst at CMC Markets UK.

“It is early days yet but we might see selling pressure ramp up for fear there could be a stampede for the exit.”

The CBOE Market Volatility index, often used as a gauge for investor anxiety, rose as high as 29.65, its highest level since December 21.

Biggest fall since October

The Dow Jones index lost 634 points (-2.1pc) to close at 30,303, its worst trading day since late October.

The S&P 500 dropped (-2.6pc) to 3,751, wiping out its gains from the past three weeks.

The tech-heavy Nasdaq Composite fell (-2.6pc) to 13,270.

Meanwhile, Boeing shares plunged (-4.5pc) and was among the top drags on the Dow.

This was after the plane maker posted a record annual loss, and took a hefty $US6.5 billion charge on its all-new 777X jetliner due to the COVID-19 pandemic and the aftermath of a two-year safety crisis over its 737 MAX.

Meanwhile, the US Federal Reserve kept overnight interest rates near zero.

The central bank made no change to its monthly bond purchases, as was widely expected, and pledged to keep that support intact until a full economic rebound is in place.

“The [Fed] statement itself really did not contain much new information, but it did put a lid on fears that the Fed may be considering tapering asset purchases sooner than expected,” said Jason Pride, chief investment office for private wealth at Glenmede in Philadelphia.

If anything, the Fed added a statement recognising that the pace of recovery has moderated in recent months.”

In Europe, Britain’s FTSE sank (-1.3pc) to 6,567, and Germany’s DAX declined (-1.8pc) to 13,620 points.

Spot Gold fell to (-0.5pc) to $US1,840.21, its lowest value in more than a week.

Brent crude oil slipped (-0.6pc) to $US55.60 a barrel.

ABC/Reuters

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