European and US stock markets slumped Friday as investors dwelled on the prospect of rising US interest rates.
Europe's main bourses all fell nearly two percent.
On Wall Street, the Dow was also down by 1.4 percent, with the S&P 500 and tech-heavy Nasdaq Composite showing losses of around one percent.
"It is turning into a bit of a black Friday for risk assets in what looks like a mini taper tantrum," said market analyst Fawad Razaqzada at ThinkMarkets.
The reference is to a 2013 panic on markets after the US Federal Reserve indicated it would begin to slowly reduce is stimulus measures for the economy.
With renewed measures by the Fed and other central banks propping up economies that are rebounding as the Covid-19 pandemic eases, investors have been worrying about similar moves to reduce stimulus measures and hike interest rates.
On Wednesday, Fed officials held interest rates and stimulus measures steady as expected.
But a survey indicated that their median outlook for interest rate hikes has shifted to 2023 from 2024 previously. And a considerable number indicated they see interest rate hikes next year.
That sent Wall Street stocks lower on Wednesday, but they traded mixed on Thursday.
Saint Louis Fed chief Jim Bullard, who will vote on the monetary policy committee next year, said on TV early on Friday that he expects an interest rate hike next year, which sent US stock futures lower ahead of the opening bell.
"Investors fear that with inflation rising rapidly, QE (quantitative easing or stimulus) might be tapered sooner than expected," Razaqzada said.
- Shift in Fed thinking? -
However, Chris Beauchamp, chief market analyst at online trading platform IG, said one shouldn't read too much into the drop as many stock options and futures contracts expire on Friday.
"Heavy losses in Europe and in the US are being influenced by options expiry but the second half of this week has taken on a distinctly 'risk off' feel," said Beauchamp.
He said investors are reassessing if the Fed has shifted in its concerns after having spent the past several months reassuring investors that inflation would just be transitory.
Beauchamp said "the world's most powerful central bank appears to have shied away from the implications of such a policy and instead has gone back to the usual playbook of worrying about inflation."
If investors conclude that is indeed the case, it "could signal the start of a much more volatile period for markets", he added.
With the post-pandemic recovery well under way in most countries as vaccination campaigns roll out and containment measures are eased, the general mood across trading floors has been positive.
The blockbuster growth enjoyed this year has seen stocks strike new highs, but that has prompted inflation worries as surge in buying spurred by pent-up demand for goods along with supply constraints and bottlenecks has sent prices rocketing.
That, in turn, has raised concerns central banks may tighten their ultra-loose monetary policies earlier than previously flagged.
- Key figures at 1530 GMT -
New York - Dow: DOWN 1.4 percent at 33,344.29 points
EURO STOXX 50: DOWN 1.8 percent at 4,083.37
London - FTSE 100: DOWN 1.9 percent at 7,017.47 (close)
Frankfurt - DAX 30: DOWN 1.8 percent at 15,448.04 (close)
Paris - CAC 40: DOWN 1.5 percent at 6,569.16 (close)
Tokyo - Nikkei 225: DOWN 0.2 percent at 28,964.08 (close)
Hong Kong - Hang Seng Index: UP 0.9 percent at 28,801.27 (close)
Shanghai - Composite: FLAT at 3,525.10 (close)
Euro/dollar: DOWN at $1.1856 from $1.1907 at 2100 GMT
Pound/dollar: DOWN at $1.3800 from $1.3922
Euro/pound: UP at 85.91 pence from 85.53 pence
Dollar/yen: UP at 110.25 yen from 110.21 yen
Brent North Sea crude: UP 0.7 percent at $73.57 per barrel
West Texas Intermediate: UP 1.2 percent at $71.88 per barrel