A fresh escalation of trade war concerns unsettled Asian and European stock markets, although Apple once again provided support for US equity indices as the iPhone maker's market capitalisation hit $1 trillion.
President Donald Trump fuelled an early bout of market nerves after he instructed his trade tsar to consider raising proposed tariffs on $200 billion of Chinese imports to 25 per cent, from the 10 per cent originally announced last month.
"We suspect the president has been emboldened by his success in extracting concessions from the EU with the US's recent threat of car tariffs, which has been put on ice for now," said Bill Diviney at ABN Amro.
“It may also be a recognition that a 10 per cent tariff would have been largely neutralised by the recent weakness in the renminbi.”
Indeed, the Chinese currency fell to a 14-month low against the dollar while Asian stock markets tumbled, with China – not surprisingly – among the hardest-hit.
The sell-off spread to Europe, with Germany's export-heavy Xetra Dax index sliding 1.5 per cent, although Wall Street was more resilient.
The S&P 500 recouped an early dip while US technology stocks continued to recover from a sharp recent sell-off.
The trade war worries helped the dollar climb back towards the 12-month high it reached against a basket of peers two weeks ago, while the yen was mostly stronger.
The yield on the 10-year Treasury, which moves inversely to its price, fell back below the 3 per cent level it breached on Wednesday for the first time since June.
There was fresh volatility for Japanese bonds, as the 10-year yield hit an 18-month high in the wake of the Bank of Japan’s tweaks to its policy stance earlier this week.
Meanwhile, sterling found no lasting support from the Bank of England’s decision to raise interest rates, which had been widely anticipated.
BoE governor Mark Carney sounded notably cautious in the press conference, saying the Monetary Policy Council needed to "walk, not run" in raising rates.
"For this reason, today's rate rise will go down as a 'dovish hike'," said Daniel Vernazza at UniCredit.
By mid-afternoon in New York, the S&P 500 was up 0.5 per cent at 2,826 – having been down as much as 0.6 per cent in early trade – while the Nasdaq Composite was up 1.1 per cent, leaving it less than 2 per cent short of last week’s record high.
The more trade-sensitive Dow Jones Industrial Average was flat.
Across the Atlantic, the pan-European Stoxx 600 index ended 0.8 per cent lower while the FTSE 100 in London shed 1 per cent.
China's CSI 300 index tumbled 2.2 per cent to its weakest point since early July and the Hang Seng in Hong Kong fell to a 10-month low.
The dollar index was up 0.5 per cent at 95.09, not far from the one-year intraday high of 95.65 hit on July 19th.
The euro was 0.6 per cent lower versus the dollar at £1.1585 and 0.6 per cent weaker against the yen at 129.42 yen. The dollar was flat against the Japanese currency at 111.71 yen.
Sterling was down 0.8 per cent against the dollar at the day’s low of $1.3016, and the euro was up 0.2 per cent versus the pound at £0.8897. Gilts were little moved, with the two-year yield steady at 0.79 per cent and the 10-year flat at 1.38 per cent.
The 10-year US Treasury yield was down 2 basis points at 2.99 per cent – having touched 2.975 per cent – while the two-year yield was 2 basis points lower at 2.67 per cent.
Germany’s 10-year Bund yield shed 3 basis points to 0.46 per cent.
In Tokyo, the 10-year JGB yield rose as high as 0.145 per cent before easing back to 0.121 per cent barely changed on the day.
– Copyright The Financial Times Limited 2018