Stock markets from Australia to Germany fell on Friday with many financial shares as well as the dollar, pressured by U.S. President Barack Obama proposed sweeping restrictions on banks.
Emerging market stocks were set for their biggest weekly fall since early November with losses of more than 4 percent so far this week as Obama's plan further dampened demand for riskier assets.
Global markets had already recoiled in recent weeks on fears Chinese demand would slow as Beijing taps the brakes on its roaring growth to stave off inflation and keep the economy from overheating.
Obama's proposals, which still need congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
"The witch hunt against the banks continues and while that may be justified in terms of lowering risk, it's not good for P&L and restricts the level of economic activity so it's good for bonds," said Charles Diebel, strategist at Nomura.
Global stocks as measured by MSCI fell 0.2 percent, while emerging market stocks skidded 1.5 percent.
In Europe, the regional FTSEurofirst 300 index shed 0.2 percent, having earlier plumbed a near five-week low with Germany's DAX down 0.5 percent and France's CAC 40 falling 0.3 percent.
Barclays, BNP Paribas and Deutsche Bank all slid between 2 to 4 percent.
In Asia, Japanese stocks fell 2.56 percent to a three-week closing low after U.S. stocks lost as much as 2 percent overnight, the worst one-day percentage fall since October.
"We have to digest that the reception in the last trading session in the U.S. to the Obama plan was very negative in the financial space and this has provoked some risk aversion across the board," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.
BONDS UP, DOLLAR DOWN
That risk aversion helped bolster demand for lower risk government bonds, helping pin bond yields down. The 10-year German Bund yield fell to a five-week low at 3.185 percent and was last at 3.195 percent.
The dollar was broadly weaker as investors tried to assess what the White House plan meant for the greenback and U.S. assets.
The dollar eased 0.2 percent against a basket of major currencies. The euro climbed 0.4 percent to $1.4139. Against the Japanese currency, the dollar slipped 0.1 percent to 90.30 yen. The yen — which had jumped in Asian trade as shares fell sharply and investors became more averse to risk — cut much of its gains, with traders saying its failure to break through key levels sparked a corrective move, particularly in yen crosses.
"The yen has been the biggest gainer overnight, hitting a nine month high against the euro, while the U.S. dollar has also slipped back as the markets digest the impact of President Obama's determination to rein in the banks and the potential effect on their risk profiles," CMC Markets' Michael Hewson said.
