The dollar rose Wednesday while gold and most Asian equities fell after top Federal Reserve officials dented hopes for a big interest rate cut, while traders are also fretting over this week's meeting between Donald Trump and Xi Jinping.
Adding to the downward pressure were concerns about worsening tensions between the US and Iran, although a drop in US stockpiles boosted oil prices.
Global markets had been on a healthy rally for more than a week after Trump hailed phone talks with his Chinese counterpart and said they would meet to discuss their trade war on the sidelines of the G20 summit in Osaka.
That coincided with a dovish lean from the US central bank that raised expectations that it would soon announce its first rate reduction in more than a decade.
However, optimism took a hit Tuesday after Fed boss Jerome Powell warned about the outlook for the US economy but said policymakers would not "overreact" to recent data.
Also Tuesday, St Louis Fed president James Bullard, considered a key dove on the board, told Bloomberg a cut of 50 basis points -- which many investors had been hoping for -- would be excessive.
The remarks hit equities, with Wall Street's three main indexes closing sharply lower, while the dollar -- which has come under heavy pressure of late -- bounced back against its major peers and other higher-yielding but riskier currencies.
Tokyo ended 0.5 per cent lower, Shanghai fell 0.2 per cent, Sydney slipped 0.3 per cent and Singapore was off 0.1 per cent, with Wellington, Taipei, Manila and Bangkok also down.
However, Hong Kong eked out small gains in the afternoon, as did Jakarta and Mumbai.
In early trade London and Frankfurt each dipped 0.1 per cent, while Paris eased 0.2 per cent.
"Bullard... dashed the hopes of many investors who were expecting the Fed to kick-start this easing cycle with a bang," said Edward Moya, senior market analyst at OANDA.
"With the most dovish member taking a 50-basis point cut off the table, the dollar surged as equities tumbled."
The weaker dollar put a cap on gold's rally, with the metal's safe haven status in times of turmoil unable to stop it retreating from six-year highs.
Investors are keeping their focus on the planned meeting between Trump and Xi in Japan, although the US side dampened expectations for a deal between the two, saying the talks would set out a path for an agreement.
However, officials did say they were willing to hold off hiking tariffs on more Chinese goods, Bloomberg News reported.
Still, observers expect the issue to continue for some time.
"The US-China trade war stalemate is likely to continue as political considerations reign supreme," said asset manager T Rowe Price.
"With President Trump facing re-election in 2020, he may want to put off any agreement until next year, while China may want to deny President Trump a trade success to damage his re-election prospects, allowing Beijing to negotiate with his successor."
Crude surged after data showed a 7.55-million-barrel decline in US inventories, with Iran tensions also buoying the market.
"Oil prices went ballistic" after the report from industry group the American Petroleum Institute, said Stephen Innes of Vanguard Markets.
"This is a strong signal for the energy market."
Bitcoin broke USD 12,000 for the first time since the start of last year on continued demand after Facebook unveiled its own crypto currency.
"The biggest players are looking at cryptocurrencies afresh and don't want to miss out," said Neil Wilson, chief market analyst at Markets.com, adding that the unit could break its late 2017 record and hit USD20,000.
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