Asian markets sank Thursday after the Federal Reserve hiked interest rates and boss Jerome Powell suggested they would go higher than expected, blowing a hole in hopes for a more dovish pivot in its fight against inflation.
Equities have rallied for more than a week on speculation the US central bank would join others in tamping down its monetary-tightening campaign as the economy showed signs of slowing.
On Wednesday, the bank unveiled a fourth straight 75 basis-point increase -- the sixth hike this year -- and opened the door to a smaller increase at future meetings, giving a boost to Wall Street.
However, Powell soon after sent traders scattering when he told a news conference that while it would be appropriate to lessen the size of the hikes, "incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected".
He added that "we still have some ways" until borrowing costs were at the necessary level and that it "is very premature to be thinking about pausing".
And while there is a building fear that the increasingly tight monetary conditions will send the world's top economy into a recession, the Fed boss said it would take time for the effects of the measures to kick in.
"The historical record cautions strongly against prematurely loosening policy," he warned. "We will stay the course, until the job is done."
Investors now expect rates to top out at more than five percent, compared with four percent currently.
The comments hammered the narrative that had supported stocks, sending Wall Street's three main indexes tanking -- led by rate-sensitive tech giants -- and pushing the dollar up against its peers.
"Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled-up newspaper," Scott Rundell, Mutual Ltd, said. "There's a lot of volatility still ahead."
Hong Kong led the losses as traders gave back a chunk of the previous two days' gains that came on the back of speculation China was planning to roll back some of its painful zero-Covid policies. Adding to the selling was confirmation from Beijing's health authority that it intended to stick to the strategy.
Shanghai, Sydney, Seoul, Wellington, Taipei, Manila and Jakarta were also well in the red. Tokyo was closed for a holiday.
The release Friday of US jobs figures will give another insight into the state of the economy and particularly the labour market, which has remained resilient in the face of decades-high inflation and rising rates.
As the Fed is basing its moves on data, a strong reading could give officials room to continue lifting.
Before that, the Bank of England is tipped to lift its key rate 0.75 percentage points, though some analysts are predicting a full percentage point hike.
- Key figures around 0230 GMT -
Hong Kong - Hang Seng Index: DOWN 2.5 percent at 15,443.42
Shanghai - Composite: DOWN 0.3 percent at 2,993.76
Tokyo - Nikkei 225: Closed for a holiday
Euro/dollar: UP at $0.9836 from $0.9816 on Wednesday
Pound/dollar: UP at $1.1414 from $1.1390
Dollar/yen: DOWN at 147.27 yen from 147.90 yen
Euro/pound: UP at 86.18 pence from 86.17 pence
West Texas Intermediate: DOWN 0.8 percent at $89.32 per barrel
Brent North Sea crude: DOWN 0.5 percent at $95.64 per barrel
New York - Dow: DOWN 1.6 percent at 32,147.76 (close)
London - FTSE 100: DOWN 0.6 percent at 7,144.14 (close)