Growing doubts US President Donald Trump will be able to deliver on a promise of tax cuts that has powered stocks markets to record highs pushed shares lower on Wednesday and drove investors to seek safety in government debt, gold and the yen.
The dollar touched a four-month low against the Japanese currency, whose strength helped push Tokyo stocks to a three-week low, while the euro held close to its highest since early February at around $1.08.
Investors flight to safety pushed down US Treasury yields and the gap between US and German 10-year government borrowing costs hit its narrowest since November.
European shares opened lower after Asian shares suffered their biggest percentage daily fall since mid-December and, on Tuesday, the S&P 500 fell by more than 1 per cent for the first time since October 11.
Waning risk appetite also hit commodities: Brent crude oil fell 20 cents to $50.76 a barrel, while copper fell 0.5 per cent to $5.747 a tonne.
The main factor behind the sell-off in risky assets was doubt that Trump would be able to deliver on his agenda for economic growth, including tax cuts and relaxed regulation, any time soon.
Healthcare Bill
Trump is trying to rally Republican lawmakers behind a plan to dismantle Obamacare, and investors worry that failure could spell trouble for the promised tax cuts and regulatory changes .
Societe Generale currency strategist Alvin Tan, in London, said an FBI investigation into possible ties between Trump's campaign and Russia was also adding to investor worries.
“All in all, thats adding to a picture that the much hoped-for and hyped fiscal stimulus package may not be coming as soon as markets would like it to come, if at all,” he said.
The pan-European STOXX 600 index fell 0.9 per cent to a two-week low, led lower by banks and miners . Britain's FTSE 100 index fell 0.9 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4 per cent at one point, its biggest intraday percentage fall since December 15. In the previous session, the index hit its highest level since June 2015.
Japanese stocks fell 2 per cent, Australian shares tumbled 1.6 per cent and mainland Chinese shares closed down 0.5 per cent. MSCI's main measure of emerging market equities slid nearly 1 per cent.
E-mini futures on the S&P500 and Dow Jones Industrial Average indicated Wall Street would open lower and the CBOE VIX index, known as the “fear gauge", of implied volatility on the S&P topped 13 per cent for the first time since mid-January.
The dollar was flat against a basket of currencies but down 0.3 per cent versus the yen, having hit a four-month low of 111.25 yen earlier in the day.
The euro dipped 0.2 per cent to $1.0790, off a high of $1.0818 as European trading began. Sterling fell 0.1 per cent to $1.2463.
Treasury yields
US Treasury yields, which fell on Tuesday with Wall Street, dropped further. The 10-year benchmark yield dipped below 2.4 per cent for the first time since March 1.
In early trade, the closely watched gap between US and German 10-year yields touched its narrowest since November at around 195 basis points. German 10-year yields, the benchmark for euro zone borrowing costs, then fell further and were last down 4.8 basis points at 0.41 per cent.
“Market participants are worried about the effects and feasibility of Donald Trump's growth programme,” DZ Bank strategist Birgit Figge said.
“Alongside this, speculation is persisting ... that the ECB may possibly scale back its ultra-expansionary policy stance to some extent at an earlier point in time than is currently being assumed.”
Gold hit a three-week peak of $1,248.47 and last traded up 0.2 per cent at $1,247 an ounce. It has rallied almost $50 from last Wednesday's low after a less hawkish policy statement than many investors had expected from the US Federal Reserve.