Asian markets fell Friday as a string of top Federal Reserve officials pressed their cases for fighting inflation, raising concerns the bank will embark on an aggressive campaign that could see four interest rate hikes this year.
A pledge by Fed chief Jerome Powell this week to rein in surging prices while also nurturing the recovery in the world's top economy provided a much-needed lift to investor sentiment and helped propel a rally across equities.
Data showing US inflation appeared to be stabilising added to the positivity and tempered fears about the end of the ultra-loose monetary policies, which have been key to a near two-year markets rally and global economic rebound.
But the mood darkened Thursday after the officials' comments.
Lael Brainard, in her Senate hearing to become Powell's deputy, said rates could rise as early as March, a move supported by Fed Bank of Philadelphia chief Patrick Harker who also raised the possibility of another three before the end of the year.
The heads of the Chicago and St Louis Feds saw a similar number of hikes, while Raphael Bostic of Atlanta said he was open to a March move.
Minutes from the bank's December policy meeting showed officials were keen to act quickly to tame prices, and speed up the taper of its massive bond-buying programme, then begin offloading its Treasury holdings -- measures that have been used to keep rates at all-time lows.
"A recent chorus of Fed speakers... have said they are open to raising interest rates in March, which means the possibility of four rate hikes this year is growing," said OANDA's Edward Moya.
"With four (policy board) voters now expecting to hike in March, financial markets can't rule out it is possible that they could deliver five rate hikes this year."
- 'Ripe for more fluctuations' -
The Nasdaq led steep losses across Wall Street, dropping more than two percent as tech firms are more susceptible to higher borrowing costs.
And the selling continued in Asia, with Tokyo off more than two percent, while Sydney and Seoul were down more than one percent each.
Hong Kong was well down, having enjoyed a strong rally this week, with tech firms there under pressure. Shanghai, Wellington, Taipei, Manila and Jakarta were also in the red. Singapore bucked the trend to rise.
"We are in a position where much that has been positive for equities is maybe moving to neutral or negative," said Sarah Hunt, of Alpine Woods Capital Investors.
"And while there are still few alternatives, it makes the equity market ripe for more fluctuations over the next few months as we see how the data shake out and how the Fed reacts."
The impact of rocketing prices on businesses was made clear in a survey by The Conference Board on Thursday, with chief executives saying they were the second-biggest worry, behind labour shortages.
Still, markets strategist Louis Navellier remained upbeat, saying: "An anticipated (economic) reopening will present recovery opportunities that are fairly predictable.
"Expect some near-term volatility as we navigate to the end of the pandemic and begin to experience the tapering by the Fed and use the pullbacks as a buying opportunity to position for a strong recovery come springtime."
- Key figures around 0230 GMT -
Tokyo - Nikkei 225: DOWN 1.9 percent at 27,945.70 (break)
Hong Kong - Hang Seng Index: DOWN 0.6 percent at 24,280.07
Shanghai - Composite: DOWN 0.3 percent at 3,543.88
Dollar/yen: DOWN at 113.77 yen from 114.16 yen late Thursday
Euro/dollar: DOWN at $1.1466 from $1.1469
Pound/dollar: UP at $1.3722 from $1.3704
Euro/pound: UP at 83.56 pence from 83.50 pence
West Texas Intermediate: DOWN 0.6 percent at $81.45 per barrel
Brent North Sea crude: DOWN 0.4 percent at $84.16 per barrel
New York - DOW: DOWN 0.5 percent at 36,113.62 (close)
London - FTSE 100: UP 0.2 percent at 7,563.85 (close)
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