World stocks were heading for a 3% loss on the week while the dollar hit 24-year highs against the yen for a second day on Friday ahead of key U.S. jobs data, as investors brace for aggressive rate hikes from the Federal Reserve.
Fresh lockdowns in China are also fuelling concerns about global growth, while high energy costs as a result of the war in Ukraine are weighing on European markets.
"The market is laser-focused on how aggressive the Fed is going to be with its hiking cycle," said Giles Coghlan, chief currency analyst at HYCM, pointing out that expectations for higher rates have solidified since a speech last week by Fed chair Jerome Powell at the Jackson Hole central banking conference.
The markets are worried about "China slowing, euro zone recession and a hawkish Fed," he added.
The MSCI world equity index steadied above 6-week lows set in the previous session but was heading for its third straight week of losses.
U.S. S&P futures were flat after the S&P 500 index rose 0.3% on Thursday.
U.S. August nonfarm payroll figures due at 1230 GMT on Friday are expected to show 300,000 jobs were added last month, while unemployment hovered at 3.5%.
Strong data is seen strengthening the Fed's ability to raise rates to curb inflation without crimping growth.
Futures markets have priced in as much as a 75% chance the Fed will hike by 75 basis points at its September policy meeting, compared with a 69% probability a day ago..
European stocks also pulled back from Thursday's 6-week lows, gaining 0.5%, while Britain's FTSE rose 0.4%.
In Europe, fears of a recession are on the rise, with a survey showing on Thursday that manufacturing activity across the euro zone declined again last month, as consumers feeling the pinch from a deepening cost of living crisis cut spending.
The U.S. dollar hit 24-year highs against the low-yielding yen before trimming gains to steady at 140.28.
The dollar index, which measures its performance against a basket of six currencies, dipped 0.24% after hitting a 20-year high in the previous session.
The euro rose 0.4% to $0.9985.
In bond markets, the yield on benchmark two-year notes edged 2 basis points lower to 3.5006%, while the yield on 10-year bonds dipped 1 bp to 3.2537%.
German 10-year bond yields rose 1.5 bps to 1.579%.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, heading for its worst weekly performance since mid-June with a tumble of 3.6%, as rising expectations of aggressive global rate hikes hit risky assets.
Japan's Nikkei dipped 0.1%, Chinese blue chips dropped 0.5%, Hong Kong's Hang Seng index fell 0.9% and South Korea fell 0.3%.
The southwestern Chinese metropolis of Chengdu on Thursday announced a lockdown of its 21.2 million residents, while the technology hub of Shenzhen also rolled out new social distancing rules as more Chinese cities tried to battle recurring COVID-19 outbreaks.
Analysts at Nomura said what is becoming more concerning is that COVID-19 hotspots in China are shifting away from remote regions and cities to provinces that matter much more to China's national economy.
"We maintain the view that China will keep its zero-COVID policy until March 2023, when the (leadership) reshuffle is fully completed, but we now expect a slower pace of easing of the zero-COVID policy after March 2023," Nomura said.
Oil prices tumbled 3% overnight before recovering some ground on Friday but were on track to post sharp weekly losses on fears COVID-19 curbs in China and weak global growth will hit demand.
Brent crude futures rose 2% to $94.15 a barrel while U.S. West Texas Intermediate (WTI) crude futures were up by 1.75% to $88.34 a barrel.
Spot gold rose 0.35% to $1701 per ounce.
