Asian equities sank Friday, dragged by a worse-than-forecast US jobless claims report that fanned fears about the economic recovery, while the mood was also being darkened by China-US tensions, stalled stimulus talks in Washington and a surge in virus cases.

The losses come at the end of another tough week for markets, which have shown signs of stuttering after a months-long rally from their March trough, with Washington and Beijing butting heads again, this time over US claims of Chinese espionage.

And they looked set to finish with more losses following a sharp drop on Wall Street that came in response to news that 1.4 million Americans applied for jobless benefits last week, the first week-on-week rise since the start of the crisis.

The increase came as several states around the country were forced to reimpose containment measures soon after reopening from lockdown, forcing some to close bars, restaurants and other businesses key to the economy.

The reversion to such measures has come as a big blow to investors who had grown optimistic that the US economy was rebounding sharply from the collapse seen earlier in the year.

"Despite the data holding to season norms, it is difficult for investors to look through the discordant sense of permanency that is getting displayed in the absolute number of folks claiming benefits," said Stephen Innes of AxiCorp.

"But it also confirms what we all thought, (which) is that more gloom is building on the horizon as the reintroduction of lockdown measures in the most populous US states is walking back the thesis that the economy was rebounding sharply."

The Dow and S&P 500 both lost more than one percent and the Nasdaq, which has been hitting regular records of late, dropped more than two percent.

And the losses filtered through to Asia, where Hong Kong, Shanghai and Singapore were all 0.9 percent lower, while Sydney fell one percent.

Manila, Jakarta and Wellington were around 0.5 percent lower, though Taipei edged up and Seoul was flat.

Economists suggested the weak data could spur US lawmakers to push on with fresh stimulus measures as their previous multi-trillion-dollar package comes to an end soon.

But Republicans and the White House have been unable to reach an agreement on their $1 trillion proposal, with the two still at odds over the $600 weekly unemployment benefits, which are drawn by 30 million people but run out this weekend.

Even once that is passed, they must then haggle with Democrats, who have already prepared their own $3.5-trillion plan, all the while with the August recess approaching.

Many US states have reimposed containment measures
A spike in infections has forced a number of US states to reimpose containment measures, forcing some to close businesses crucial to economic growth. Photo: AFP / Robyn Beck

"Why on Earth the passing of this new US stimulus bill has devolved into a case of political gerrymandering when economic calamity is knocking at the door, is beyond comprehension," Innes added.

"Congress is considering extending additional unemployment benefits until the end of the year, but cutting the amount when they should be adding more to the punch bowl is obscene."

Gold -- a go-to asset in times of turmoil -- continued its march higher, coming within spitting distance of $1,900 for the first time since late 2011, boosted by uncertainty over the economic recovery, geopolitical tensions and Federal Reserve monetary easing that has weakened the dollar.

Hong Kong - Hang Seng: DOWN 0.9 percent at 25,039.95

Shanghai - Composite: DOWN 0.9 percent at 3,292.01

Tokyo - Nikkei 225: Closed for a holiday

Euro/dollar: UP at $1.1611 from $1.1594 at 2050 GMT

Dollar/yen: DOWN at 106.56 yen from 106.86 yen

Pound/dollar: UP at $1.2751 from $1.2736

Euro/pound: UP at 91.05 pence from 91.00 pence

West Texas Intermediate: UP 0.2 percent at $41.14 per barrel

Brent North Sea crude: UP 0.1 percent at $43.36 per barrel

New York - Dow: DOWN 1.3 percent at 26,652.33 (close)

London - FTSE 100: UP 0.1 percent at 6,211.44 (close)

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