Asian markets were broadly down Thursday after the Fed signalled a possible inflation-induced policy change, while concerns lingered over China's crackdown on tech giants.
The Federal Reserve said Wednesday that while rising prices were expected as the US economy recovered from the pandemic, the inflation jump was higher than expected.
Officials said the US central bank needs to be ready to pull back on its massive support programme if this persists, according to minutes from a June policy meeting.
But it gave no indication that a reversal was imminent - a stance consistent with commentary from Fed chair Jay Powell that did not jolt the market.
US markets appeared ready to set aside inflation fears - at least for the time being - with Wall Street finishing modestly higher as both the S&P 500 and Nasdaq edged to records.
"It took some time, but the Fed has finally acknowledged rising inflationary forces," Louis Navellier, chairman of Navellier & Associates, said in a note to investors on Wednesday.
The strong overnight lead from Wall Street provided some boost in Asia, but Tokyo closed down Thursday as the Japanese government was set to impose a new virus state of emergency to fight a surge in infections.
Sydney closed up, with investors apparently not affected by news that the lockdown in Australia's biggest city could be extended.
Seoul and Singapore closed down.
Bourses in London, Paris and Frankfurt also fell on open as the European Central Bank was set to announce the results of an 18-month policy review -- a review widely expected to see it redefine its inflation target.
Hong Kong stocks were well down on closing, extending losses into a seventh day, on continued concerns about China's crackdown on the country's tech giants.
Beijing's shock decision to remove ride-hailing app Didi from online platforms on national security grounds sparked fears of a wider regulatory move against firms once seen as untouchable.
Authorities this week suggested they could revise rules for Chinese companies listed overseas - a move that would clip the wings of major firms such as Alibaba, Tencent and Bytedance and potentially limit their ability to attract foreign capital.
Naspers and its subsidiary Prosus, which owns almost 29% of Tencent, saw more losses on Thursday morning on the JSE. Naspers fell another 3% to R2 781.24, and is now down 28% from its highest point (R3 888.00) reached earlier this year.
Thursday saw a key measure of mainland shares traded in the financial hub fall by up to three percent, as investors moved to jettison shares of big-name Chinese firms.
Investors were more upbeat despite closing down in mainland China, with bonds rallying on indications from Beijing that it would increase support to businesses, in part by expanding the liquidity available to banks.
The triumphant recovery from the pandemic in the world's second-largest economy had shown signs of slowing in recent weeks, with manufacturing activity edging down in June and factory gate inflation soaring.
China's State Council said Wednesday following a meeting that it was prepared to "use monetary policy tools... to enhance financial support to the real economy, particularly to smaller businesses."
The news prompted a rally on bonds, pushing China's benchmark 10-year bond yields to three percent -- their lowest level since August -- as traders predicted a flood of much-needed liquidity.
"This is an important dovish shift and is likely to drive unwind of residual policy normalisation fear and expectations, and render some support to broad risk assets," Citigroup Inc. strategists led by Gaurav Garg wrote in a note cited by Bloomberg TV.