Stock market drop spreads, Wall Street set to fall again

The Shanghai Composite index plunged 5.2 per cent to its lowest level since November 2014 and Japan's Nikkei 225 fell by an unusually wide margin of nearly 4 per cent. Markets across Southeast Asia recorded similar declines. That will raise the cost of corporate borrowing and could drag on economic growth.

On Wednesday, U.S. President Donald Trump said the Federal Reserve "is making a mistake" with its campaign of rate increases.

Stephen Innes of OANDA said that Mr Trump's comments have put pressure on the dollar but "the severity of this equity rout could bring the hawkish Fed narrative into question". "I think the Fed has gone insane". The "latest sneeze" from Wall Street "could morph into a global markets pandemic", he added.

Even though Wall Street posted on Wednesday its biggest drop in eight months, sparking a global equity sell-off, the S&P 500 .SPX remains up 4.3 percent so far this year, while euro zone stocks have lost 7 percent.

MSCI's China A-shares index.MICNA0000PUS is down nearly 10 percent while MSCI's USA index.MIUS00000PUS shed 5.5 percent, compared with a 4.9 percent fall for MSCI's gauge of stock performance in 47 countries.MIWD00000PUS. The Kospi in South Korea fell 3.6% to 2,148.97. Australia's S&P/ASX 200 slipped 2.7 percent to 5,883.80.

Most sectors in Europe were trading in the red, with tech stocks bearing the brunt of early morning selling pressure after the big USA technology stocks that have been the driving force behind a multi-year bull market posted heavy losses overnight.

Earlier this week the International Monetary Fund cut its global economic growth forecasts for 2018 and 2019, saying that trade policy tensions and the imposition of import tariffs were taking a toll on commerce.

Flight-to-quality bids boosted prices of U.S. Treasury bonds, pushing down yields.

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U.S. stock futures rebounded 0.6 percent in early Asia on Friday, in part helped by media report that the U.S. Treasury Department will not call China a currency manipulator in an upcoming report.

"There still appears to be downside risk to the market amid worries the Sino-U.S. trade war may be slowing down global growth", said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

World stock markets sank Thursday, extending losses from Wall Street as investors anxious that higher interest rates will dent company earnings and a trade war will crimp global business.

By 0845 GMT, the euro zone STOXX .STOXXE index fell 1.2 percent, while the UK's FTSE 100 .FTSE was down 1.6 percent, extending its slide as the pound finds support in expectations that Britain would reach a Brexit deal with the European Union. Dow futures were 1 percent lower at 25,268. It has fallen 7.5% in just five days. The Russell 2000 index of smaller-company stocks shed 2.9 percent, to 1,575.41. Apple slipped by 4.6 percent while Amazon lost 6.2 percent. The Cboe Volatility index.VIX ended the day up at 24.98, its highest close since February 12, a day after the S&P 500 dropped more than 3 percent in its biggest daily decline since February 8. Amazon has soared 50 percent this year, but its stock has fallen 14 percent from its all-time high in early September.

The fall in USA yields helped push the dollar lower as it undermines the attraction of investments in dollar bonds.

"The valuation of USA stocks, especially tech stocks, is still pretty high and there could be some profit taking actions now", Tan explained.

Euro zone third-quarter earnings are expected to rise 12 percent, almost half the 21 percent growth rate expected for the United States, according to Refinitiv IBES data.

The dollar rose to 112.34 yen from 112.27 yen late Wednesday. The contract settled at $73.17 in NY. Brent crude, the worldwide standard, dropped 76 cents to $82.33 a barrel.