The euphoria of last week -- fuelled by optimism the US central bank's tightening cycle was over, as well as China's pledges of economic stimulus -- has given way to uncertainty again, as analysts warn the road ahead remains bumpy.
Jobs data over the past few days has reminded traders that while inflation is coming down, the Fed still has a lot of work to make sure it continues to fall to its two percent target and stays there.
News that jobless claims were still around the lowest levels of the year added to unease -- the central bank has warned loosening the jobs market is key to fighting inflation.
That put upward pressure on Treasury yields -- flagging higher Fed rates down the line -- compounding Fitch's decision to cut the United States' gold-standard AAA rating on Tuesday.
Attention now turns to the release of jobs creation figures later Friday, which could play a key role in the Fed's rate decision-making, particularly after officials at the bank said they would be more data-dependent in future.
A forecast-busting reading on private firms hiring spooked investors.
"Having just come off the back of another 25-basis-point rate hike from the Federal Reserve last week, and what may well be the final rate hike of this cycle, (the) US payrolls data is likely to continue to showcase the resilience of the US economy," said CMC Markets analyst Michael Hewson.
Wall Street sank in response to the higher Treasury yields, extending a sell-off that has marked the week in New York.
Asia fared a little better, though sentiment remained fragile.
Hong Kong and Shanghai rose, helped by a meeting between the heads of the People's Bank of China and several companies that ended with a pledge for fresh support to the troubled property sector.
The gathering and pledge come after authorities outlined a number of measures to stimulate the economy, including some aimed at real estate.
"Developers have had some refinancing troubles again recently," Ding Shuang, at Standard Chartered said. "Support will be targeted toward high-quality companies."
Tokyo, Sydney, Wellington, Mumbai and Bangkok also rose. However, Singapore, Seoul, Manila, Jakarta and Taipei were in the red.
London dipped in the morning but Paris and Frankfurt rose.
Analysts said the selling could also be attributable to profit-taking after markets enjoyed a broadly strong July.
SPI Asset Management's Stephen Innes added: "August is commonly perceived as a quiet month.
"Still, this week's risk-off tenor reminds you that the market can swing big on unexpected events due to the low liquidity and tepid trading activity."
Oil prices edged higher, extending a rally of more than two percent Thursday that came after Saudi Arabia's decision to extend its voluntary production cut of one million barrels per day for another month.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: UP 0.1 percent at 32,192.75 (close)
Hong Kong - Hang Seng Index: UP 0.6 percent at 19,539.46 (close)
Shanghai - Composite: UP 0.2 percent at 3,288.08 (close)
London - FTSE 100: DOWN 0.1 percent at 7,524.75
Euro/dollar: DOWN at $1.0945 from $1.0952 on Thursday
Pound/dollar: DOWN at $1.2704 from $1.2710
Euro/pound: UP at 86.16 from 86.14 pence
Dollar/yen: UP at 142.63 yen from 142.52 yen
West Texas Intermediate: UP 0.5 percent at $81.94 per barrel
Brent North Sea crude: UP 0.4 percent at $85.49 per barrel
New York - Dow: DOWN 0.2 percent at 35,215.89 (close)
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