Tuesday 21:00 GMT. A burst of risk aversion weighed on global equities while pushing gold and the Swiss franc higher.
The FTSE All World index dipped 0.2 per cent as the S&P 500 fell from its record level in the previous session to close 0.3 per cent lower on the day.
The dollar index fell 0.2 per cent as the “haven” Swiss franc advanced 0.4 per cent to SFr0.8867, a two-year high.
Gold broke through resistance at $1,250 an ounce, up $22 to $1,262 after the market sensed positioning may have become overly bearish.
Industrial commodities pared gains, with Brent crude, which had earlier flirted with $110 a barrel, falling 90 cents to $108.64 and US copper prices up fractionally to $3.21 a pound.
There was little in the way of data catalysts to explain the moves but the deterioration in mood coincided with a rally by the yen after the Japanese unit had earlier fallen to fresh multiyear lows versus a number of peers.
The yen is considered by some a sentiment proxy for the wider market because it is the funding currency for bullish carry trade strategies.
But after the euro/yen cross traded above Y142 for the first time since October 2008, on expectations the Bank of Japan will increase further its stimulus in 2014, the yen began to strengthen and rose 0.2 per cent against the euro to Y141.57.
Similarly, the dollar lost ground, falling 0.4 per cent to Y102.83.
On the equities markets, the dip on the S&P 500 came after the broad measure of US stocks close at a record level of 1,808 on Monday, reached after the index gained 27 per cent this year.
The rally has led some investors to take profits and dial back on US equities. ABN AMRO Private Banking moved to underweight for US stocks after the recent strong performance and is recommending portfolio diversification to reduce risk.
Still, stocks have trundled higher of late as investors appeared to come to terms with the prospect of less largesse by the Federal Reserve, provided short-term borrowing costs remain grounded – the two-year yield holding near historic lows of 30 basis points – and economic conditions improve.
A poll by Reuters this week found that a small majority of economists think the Fed will start to reduce its $85bn a month bond-buying stimulus programme in March.
However, following better than expected US jobs data on Friday, the proportion of analysts who think the central bank could “taper” in January, or even after this month’s meeting, has risen notably.
Yet 10-year Treasury yields fell 5 basis points to 2.81 per cent, 12bp below the three-month high hit last week, helped lower by benign inflation levels.
This put pressure on the dollar and helped nudge the euro up 0.2 per cent to $1.3762, less than a cent shy of the highest level since October 2011, as investors also reduced expectations that the European Central Bank will instigate further stimulus measures.
The single currency has been getting support from the bloc’s current account surplus and as the region’s steadier banking system helps reduce the ECB’s balance sheet.
Earlier in Asia, when the yen was weaker, it touched a five-year trough versus the South Korean won.
But what may be good news for Japanese exporters is not so great for their South Korean counterparts and Seoul’s Kospi index fell 0.4 per cent.
Tokyo’s stock market did not benefit from the initially softer yen either, with the Nikkei 225 Average slipping 0.3 per cent.
One reason sentiment turned in Japan was a Kyodo poll showing support for Prime Minister Shinzo Abe’s administration dropped more than 10 points to 47.6 per cent, its lowest level yet.
Barclays analysts noted that a decline in support for Mr Abe raised concerns about the direction of his ambitious growth programme, dubbed “Abenomics”.
“If sustained, Mr Abe could struggle to approve the second consumption tax increase in mid-2014 and to advance his growth strategy, strengthening the incentive to support the economy through fiscal expenditure,” they told clients.
Asian emerging markets were more chipper as worries about Fed tapering relented. Indonesia’s bourse added 1.5 per cent while Malaysia held a record high.
The renminbi rose to a record high versus the dollar for the second day in a row – hitting Rmb6.0703 – as China’s central bank allowed the unit to appreciate.
That may be a bullish sign because it suggests Beijing feels the improving economy can cope with a more competitive exchange rate.
Reporting by Jamie Chisholm in London and Vivianne Rodrigues in New York
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