Equities and oil sank Friday while the dollar rallied as investors ran for the hills following the worst Wall Street rout since March, fuelled by worries about the economic recovery and a second virus wave in the US.

World markets have blasted higher since hitting a deep trough three months ago, supported by trillions of dollars in government and central bank help and an easing of lockdown measures.

But the optimism on trading floors was shattered Wednesday when Federal Reserve boss Jerome Powell signalled the world's top economy would take some time to bounce back from the crisis.

While his comments, and the bank's decision to keep interest rates at near zero for at least two years, was expected, the dose of reality jolted traders.

That coincided with figures showing a spike in new infections in key states including Texas, California, Arizona and Florida, which fanned concerns of a new wave as the nation slowly reopens.

However, Treasury Secretary Steven Mnuchin said there would be no more shutdowns, telling CNBC: "I think we've learned that if you shut down the economy, you're going to create more damage."

"Investors have been arguing in recent weeks that the stock market performance and economic reality have been disconnected, wondering when reality might hit the market," said JP Morgan Asset Management strategist Tai Hui.

"The fear of a rising rate of COVID-19 infections is the most important driver in our view for this sell-off."

In morning trade, Hong Kong was down more than one percent, Tokyo went into the break 1.5 percent down and Shanghai shed 0.7 percent.

Sydney was 1.7 percent down, Seoul, Singapore and Jakarta all dropped more than two percent and Taipei slipped 0.9 percent.

Still, the losses were shallower than earlier in the day and much lighter than on Wall Street, where all three main indexes were routed -- the Dow collapsed 6.9 percent, the S&P 500 dived 5.9 percent and the Nasdaq tanked 5.3 percent from a record high.

Paris, Frankfurt and London also plunged at least four percent.

Analysts also blamed profit-taking after the huge run-up since March, which has seen some indexes rise more than 50 percent, with many saying investors had run ahead of themselves on hopes for a V-shaped recovery.

"We... had seen an incredible rally from the bottom so the idea that investors might be looking to take some profits here is certainly what's driving the sell-off as well," Lori Heinel, at State Street Global Advisors, told Bloomberg TV.

The world equities retreat was reflected in oil markets, with both main contracts tumbling more than eight percent Thursday, hit by uncertainty over demand and data showing a jump in US stockpiles.

And the losses continued into Friday, which was weighing on energy giants in the region.

Treasury Secretary Steven Mnuchin
While some key US states are seeing signs of a second wave of infections, Treasury Secretary Steven Mnuchin said there would be no return to an economy-strangling lockdown. Photo: AFP / MANDEL NGAN

The dollar, under pressure for weeks owing to the huge Fed easing measures and the return of risk-taking, rallied as investors sought its safe-haven status. The greenback was up more than one percent against the Canadian, Australian and New Zealand dollars as well as Indonesia's rupiah.

It also jumped more than two percent against the Mexican peso and South African rand, though it weakened to the ultimate go-to unit in times of crisis, the Japanese yen.

"Who knows whether this is just the 'correction we had to have' or the start of something more serious," said National Australia Bank's Ray Attrill.

"Certainly though, we don't doubt the ongoing power of central bank policy actions -- from the Fed in particular -- in continuing to place a floor under risk assets relative to the underlying economic fundamentals on which stock prices are supposed to be based."

Tokyo - Nikkei 225: DOWN 1.5 percent at 22,131.14 (break)

Hong Kong - Hang Seng: DOWN 1.3 percent at 24,169.58

Shanghai - Composite: DOWN 0.7 percent at 2,901.58

West Texas Intermediate: DOWN 3.3 percent at $35.15 per barrel

Brent North Sea crude: DOWN 2.5 percent at $37.60 per barrel

Euro/dollar: DOWN at $1.1289 from $1.1292 at 2115 GMT

Dollar/yen: DOWN at 106.83 yen from 106.86 yen

Pound/dollar: DOWN at $1.2559 from $1.2592

Euro/pound: UP at 89.88 pence from 89.66 pence

New York - Dow: DOWN 6.9 percent at 25,128.17 (close)

London - FTSE 100: DOWN 4.0 percent at 6,076.70 (close)

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