Concerns over slowing China growth and a spike in COVID-19 cases in Europe have stymied the global equity markets rally with stocks struggling to cling to recent record highs and the euro looking on track for a second straight week of losses.
While US stocks closed at a record high on Thursday, aided by consumer discretionary and tech sectors, the optimism faded noticeably in the Asian session with the regional index set to close down 1 per cent for the week.
European stock indices edged higher in early London trading on Friday though sentiment was more cautious with a European stock market volatility gauge holding near two-week highs.
"Markets are consolidating after heady gains in the dollar and front-end bond yields in recent weeks and investors will turn their focus to the preliminary PMI data next week," said Kenneth Broux, an FX strategist at Societe Generale in London.
"In the case of the eurozone, instead of inflation we are going to pay a bit more attention on whether the new COVID restrictions are already having an impact on services activity."
High frequency data in recent weeks has shown economic activity is struggling as inflation has surged, though the deceleration in economic activity in Europe is more than in the United States with a rush of COVID-19 cases weighing on sentiment.
Europe has again become the centre of the pandemic, prompting some countries, including Germany and Austria, to reintroduce restrictions in the run-up to Christmas.
Daily new cases as a share of the population are now higher than in the United States, are rapidly catching up with the UK, and are close to the numbers in Eastern Europe, Capital Economics said.
MSCI's broadest gauge of world stocks held less than 0.5 per cent below a record high hit earlier this month though Asia-Pacific shares look set for a weekly decline of 1 per cent.
Hong Kong shares were down more than 1 per cent, dragged by index heavyweight Alibaba after the Chinese e-commerce firm's shares tumbled more than 10 per cent as its second-quarter results missed expectations due to slowing consumption, increasing competition and a regulatory crackdown.
Alibaba numbers came in the wake of a recent sharp slowdown in Chinese retail data, fuelling concerns over a broader slowdown in the recovery of the world's second-largest economy.
Sentiment was a downbeat in currency markets with the US dollar standing tall versus its major rivals, up 0.3 per cent on the day while the euro held near six-year lows versus the Swiss franc
The single currency has been on the receiving end this week after policymakers pushed back on market expectations the European Central Bank will raise interest rates to quash rising inflation.
The euro is down more than 1 per cent this week versus the US dollar, a second consecutive weekly drop.
US benchmark Treasury yields were steady below the 1.60 per cent levels with investors waiting for news on the next Federal Reserve chief announcement due in the coming days.
Turkey's lira lingered near Thursday's record low. The lira weakened about 6 per cent after the central bank, under pressure from President Tayyip Erdogan, cut rates again to take the benchmark to 15 per cent even as inflation closes in on 20 per cent.
Oil prices continued their recent volatility. US crude rose 0.96 per cent to $US79.77 a barrel. Brent crude rose 0.97 per cent to $US82.03 per barrel.
Elsewehere, bitcoin is headed for its worst week in six months - 20 per cent below recent record highs.