Global stock markets fell Tuesday as investors grow increasingly concerned that US interest rates will rise again and stay elevated for a prolonged period to tame inflation.
Most Asian and European bourses closed in the red, with Wall Street down through morning trade.
US Treasury yields jumped to fresh 16-year highs in the wake of Federal Reserve signals that it might raise rates again this year after pausing last week.
The concerns were compounded by the threat of a government shutdown in Washington as lawmakers struggled to iron out their differences on spending, leading to a warning that it could affect the US credit rating.
The haven dollar scored multi-month peaks against the pound, euro and yen, as investors also flocked to safety. The Dollar Index hit its highest level since November before steadying.
Survey data Tuesday showed US consumer confidence fell in September, extending a slump from August, amid concerns about rising prices.
An increase in oil prices pushed up energy costs in the United States over the summer, and inflation along with it, causing more headaches for the Fed in its efforts to slow price increases through interest rate hikes.
Oil also retreated earlier Tuesday on profit taking and as the impact of a strong dollar sapped demand, before resuming its climb.
- 'Morose' -
Investors fear that keeping rates high for too long, or hiking them again, could tip economies into recession.
"Concerns over high interest rates lingering for longer causes nervousness," noted Susannah Streeter, head of money and markets at stock broker Hargreaves Lansdown.
"Restrictive monetary policy in major economies, particularly the US, (reduces) appetite for goods and services, as consumers and companies keep their belts tightened," she added.
Paris and Frankfurt closed down, following the lead from Tokyo, Shanghai and Hong Kong.
London ended flat after trading up most of the day.
"Risk sentiment is morose due to Fed's pledge to keep rates higher for longer, the stronger dollar is pressuring other major markets to the downside, as combined with rising oil prices, it threatens to boost inflation across the board," said Swissquote Bank analyst Ipek Ozkardeskaya.
"The FTSE 100 is one interesting play as it lagged its technology-heavy peers earlier this year, and could come with a revenge if oil stocks continue to recover with the jump in oil prices," she added.
- 'Plenty on its mind' -
On currency markets, the dollar was hovering around 11-month highs near 150 yen, putting the spotlight on authorities in Japan, where government has warned it is willing to intervene if the moves become excessive.
However, analysts do not expect the yen to strengthen any time soon owing to the Japanese central bank's refusal to move away from its ultra-loose monetary policy.
Investors are keeping a wary eye on developments in China as the troubled property sector comes back into focus after indebted developer Evergrande said it had missed an onshore bond repayment.
The firm had earlier announced it would have to revisit its much-anticipated restructuring, citing weaker-than-expected sales, and scrapped a meeting of creditors.
Squabbling in Washington is also causing some discomfort among investors as hardline Republicans in the House of Representatives block key spending bills.
The standoff -- which could cause a government shutdown if an agreement is not reached by the weekend -- led Moody's to warn such a scenario would have negative implications for the country's top-tier credit rating.
"The stock market has plenty on its mind that is getting in the way of a concerted rebound effort at the end of what has a history of being a weak month for the stock market," said Patrick O'Hare, market analyst at Briefing.com.
- Key figures around 1540 GMT -
New York - Dow: DOWN 1.0 percent at 33,677.92 points
EURO STOXX 50: DOWN 1.0 percent at 4,126.92
London - FTSE 100: FLAT at 7,625.72 (close)
Frankfurt - DAX: DOWN 1.0 percent at 15,255.87 (close)
Paris - CAC 40: DOWN 0.7 percent at 7,074.02 (close)
Tokyo - Nikkei 225: DOWN 1.1 percent at 32,315.05 (close)
Hong Kong - Hang Seng Index: DOWN 1.5 percent at 17,466.90 (close)
Shanghai - Composite: DOWN 0.4 percent at 3,102.27 (close)
Euro/dollar: DOWN at $1.0581 from $1.0593 on Monday
Pound/dollar: DOWN at $1.2166 from $1.2211
Dollar/yen: DOWN at 148.87 yen from 148.88 yen
Euro/pound: UP at 86.95 pence from 86.74 pence
Brent North Sea crude: UP 0.5 percent at $92.40 per barrel
West Texas Intermediate: UP 0.8 percent at $90.46 per barrel
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