Asian and European stocks sank and the dollar advanced after the US Federal Reserve indicated it could hike interest rates again this year and keep them elevated longer than feared as it struggles to bring inflation to heel.
With the world's number-one economy still in rude health and the labour market showing few signs of softening, central bank officials appeared confident they had enough room for further policy tightening without causing a recession, analysts said on Thursday.
The Fed's much-anticipated meeting held borrowing costs at a two-decade high -- as expected -- but the board's "dot plot" guide to future rates pointing to another lift and just two cuts next year, instead of the four previously anticipated.
The hawkish tilt dealt a blow to sentiment among traders, who have feared more restrictive measures following a string of data showing that 11 hikes in 18 months were not having the desired impact on inflation, which is still well above the bank's two-percent target.
"We are prepared to raise rates further, if appropriate, and we intend to hold policy at a restrictive level until we're confident that inflation is mov ing sustainably toward our objective," Fed chief Jerome Powell told reporters after the decision.
All three main indexes on Wall Street ended sharply lower, with the Nasdaq losing more than one percent as tech firms took a hit owing to their susceptibility to higher borrowing costs.
Asia followed suit. Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Mumbai, Jakarta, Singapore and Taipei all retreated.
London dropped ahead of the Bank of England's own policy decision later in the day, which comes after data showed a surprise dip in UK inflation in August. The reading added to op timism that the BoE could stand pat on rates, or make any hike its last of this cycle.
Paris and Frankfurt were also in the red.
Sweden's central bank hiked rates again, saying inflation was "still too high", while Switzerland stood pat but officials warned more tightening could be needed. Norway also announced another increase and suggested a further one was "likely".
Bets on the Fed lifting rates again and holding them there for some time put further upward pressure on the dollar against its peers, hitting a fresh 10-month yen high above 148.
That has returned focus on the Bank of Japan ahead of its own meeting on Friday, with officials recently saying that they were keeping a close watch on forex markets, fuelling speculation they would intervene to protect the yen if it continued to weaken.
The BoJ gathering comes as speculation swirls that it is considering moving away from its long-term ultra-loose monetary policy and yield curve control, in which it controls the band in which government bond yields move.
Oil prices extended the week's losses on the prospect of higher US rates, while the stronger dollar made it more expensive for clients using other currencies.
The past few days' drop has pared a rally in the commodity seen since Russia and OPEC kingpin Saudi Arabia announced output cuts will last until the end of the year.
