Fears of a global trade war hit equity prices on Friday as the price of crude shot above $70 per barrel on the appointment of a hawkish US national security advisor.
Beijing responded to US President Donald Trump's announcement on Thursday of levies on up to $60 billion of Chinese imports from by saying it was "not afraid of a trade war", and released a list of potential tariffs on $3.0 billion worth of US goods, from pork to fruits and wine and including some steel and aluminium goods.
The news hammered stocks in Asia, with European stocks also finishing down, if off their worst lows of the day.
After falling sharply on Thursday after Trump's announcement, US stocks pushed higher in early trading on Friday. The rally lost steam, however, with the Dow essentially flat in midday trading.
"A tidal wave of risk aversion engulfed financial markets on Friday," FXTM analyst Lukman Otunuga said, branding Trump's move as "bold and frightening".
Market analyst Jasper Lawler at London Capital Grup said: "China’s three billion dollar response to US tariffs is the realisation of the tit-for-tat trade wars that investors have been fearing."
The developments have fuelled fears that a strong recovery in the world economy could be thrown off course as the tariffs crimp consumption and production.
But "after plummeting in early trading, stocks mostly recovered in the afternoon as investors came to realise China’s tariff response could have been a lot more severe," said Lawler.
Trade war fears sent many investors piling into the safe haven yen. The dollar dropped below 105 yen for the first time since Trump was elected president in November 2016. The greenback was down also against the euro.
- US hawk appointed -
Adding to the uncertainty was news that Trump's national security advisor HR McMaster had stepped aside and been replaced by hawk John Bolton, a move that stunned much of Washington.
A vocal advocate of the Iraq war, Bolton has also championed pre-emptive strikes against North Korea and regime change in Iran -- making him an outlier even among Republicans.
CMC Markets analyst Michael Hewson told AFP Bolton's appointment was boosting oil prices, with Europe's main oil contract climbing above $70 per barrel for the first time in seven weeks.
"The appointment of Mr Bolton, who is no fan of the Iran nuclear deal, has prompted concern about renewed efforts to overturn the nuclear deal that has seen Iranian exports return to the market."
Bolton's arrival in the White House -- the latest in a cascade of Trump's staff changes -- came just days after he replaced secretary of state Rex Tillerson with another Iran hawk, CIA director Mike Pompeo.
"Combined with the nomination of Mike Pompeo, another hawk, at the State Department, most of the market will conclude that at the minimum the Iranian nuclear deal is dead," noted Petromatrix analyst Olivier Jakob.
- Key figures around 1630 GMT -
New York - Dow: UP 0.05 percent at 23,969.78 points
London - FTSE 100: DOWN 0.4 at 6,921.94 (close)
Frankfurt - DAX 30: DOWN 1.8 percent at 11,886.31 (close)
Paris - CAC 40: DOWN 1.4 percent at 5,095.32 (close)
EURO STOXX 50: DOWN 1.3 percent at 3,303.45
Tokyo - Nikkei 225: DOWN 4.5 percent at 20,617.86 (close)
Hong Kong - Hang Seng: DOWN 2.5 percent at 30,309.29 (close)
Shanghai - Composite: DOWN 3.4 percent at 3,152.76 (close)
Dollar/yen: DOWN at 104.93 yen from 105.35 yen at 2100 GMT
Euro/dollar: UP at $1.2355 from $1.2308 at 2100 GMT
Pound/dollar: UP at $1.4150 from $1.4103
Oil - Brent North Sea: UP $1.12 at $70.03 per barrel
Oil - West Texas Intermediate: UP $1.12 cents at $65.42