Asian shares fell to their lowest levels of the year on Friday as early bargain hunting gave way to worries about Europe's raging debt crisis and weak global growth.
European shares looked set to follow their Asian peers, with spreadbetters predicting major European markets would open as much as 0.4% lower. US stock futures were also down 0.3%.
The MSCI's broadest index of Asia-Pacific shares outside Japan reversed early gains to slip 0.7%, hitting its lowest since late December as worries about a possible Greek exit from the euro zone weighed on the market.
The pan-Asia stock index was set for a third consecutive week of losses, on track for a 1.1% weekly decline to post its longest losing streak in six months. The index has now edged into negative territory for the year, having been up some 15% from end-2011 levels in late February.
Japan's Nikkei stock average inched up 0.3%, but looked set to record its longest weekly losing run in 20 years.
"Funds are still cutting positions, with some seeing some redemption pressures. We are trading at low valuations, but nobody is buying because of the various sources of uncertainty now," said Wang Ao-chao, UOB Kay Hian's Shanghai-based head of research.
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Concerns about global growth and a failure by European policymakers to make any significant breakthroughs to resolve the debt crisis have curbed risk appetite and strengthened demand for highly rated government bonds.
Germany's 10-year government bond yield fell to a record low of 1.35% on Thursday.
The euro remained pressured by the uncertain outlook for the fate of Greece - as well as that of the entire currency bloc - and traded down 0.1% at $1.2530 after falling to its lowest since July 2010, at $1.25155, on Thursday.
The dollar index measured against key currencies touched a fresh 20-month peak of 82.411 due to the dollar's safe-haven appeal.
"Markets have priced in a very negative scenario for Greece as well as deteriorating growth prospects in the euro zone, but with them very much focused on the tail risk of Greece leaving the euro bloc, the euro remains highly vulnerable," said Masafumi Yamamoto, chief FX strategist at Barclays.
Yamamoto said the euro could temporarily dip below $1.20 to its lowest since June 2010 in volatile sessions leading up to the June 17 election if it appeared Greeks would back anti-bailout parties, setting the stage for a potential euro exit.
A poll on Thursday showed Greece's anti-bailout leftist SYRIZA party was maintaining its lead ahead of a June 17 election which may determine whether the country remains inside the common currency bloc.
Asian credit markets steadied, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by one basis point.
Oil, which retained its gains earlier, succumbed to the retreat in broader markets, with US crude futures down 0.1% at $90.57 a barrel and Brent futures easing 0.2% to $106.32 a barrel.
Spot gold continued to track the euro lower, falling 0.3% to $1,552.26 an ounce.
Fleeing emerging markets
Investors also slashed their exposures to emerging market bonds, an asset class which had until now been defying the risk aversion in developed markets.
Morgan Stanley in its research cited EPFR Global data as showing that in the week to May 24, bond funds dedicated to emerging markets saw net outflows of $478 million.
Among emerging currencies, the Indonesian rupiah led the pack lower on Friday amid fears of more outflows from Southeast Asia's biggest economy as worries grew over global growth.
Dollar/rupiah's one-month non-deliverable forwards (NDFs) rose 1.9% to 9,780, the highest since September 2009 while the spread widened to 430 pips, the largest since September 30 2011 when Indonesia suffered massive outflows.
"Indonesian fundamentals do not deserve such treatment but a given a risk-averse environment and lack of major central bank intervention, low liquidity and past memories of the country's travails are conspiring to weigh on the currency," said Dariusz Kowalczyk, Credit Agricole CIB's senior economist and strategist in Hong Kong.
Growth slowdown globally
Data from the United States, China and Europe on Thursday underscored the damage the euro zone's fiscal plight has inflicted on growth globally.
US jobless claims were little changed in the week ended on Saturday, while a key category of durable goods orders seen as a proxy for business spending declined.
Manufacturing activity in the euro zone in May shrank to its lowest reading since June 2009 and the guide to growth in Europe's powerhouse Germany also contracted in May, pointing to deteriorating growth ahead.
Slowing external conditions were reflected in China's HSBC Flash PMI, which fell in April for the seventh straight month of the index holding below 50, signalling that the economy would remain sluggish throughout the first half of the year.