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Fresh political turbulence in Washington and renewed fears over US-China relations pushed Asian markets lower Friday, as a global slump sparked by unease over Fed policy showed no signs of easing.
The resignation of US Defense Secretary Jim Mattis - seen as a moderating force on an often impulsive president - and the looming threat of a federal government shutdown alarmed investors as concern grows over weakening global growth.
US stocks endured a torrid session, the latest losses in a bruising December that has set up Wall Street for its worst year since the 2007 financial crisis, with the Nasdaq now almost 20% off its peak this year.
Shares turned sharply lower after President Donald Trump hardened his demand Congress fund a US-Mexico border wall, plunging Washington into chaos and leaving the US government on the verge of a Christmas shutdown.
Rising tension between the world's two largest economies also unnerved markets, with China hitting back at the US after the Justice Department indicted two alleged Chinese hackers accused of having ties to Beijing's security services.
US officials said the indictment showed President Xi Jinping had not fulfilled his pledge to stop cybercrime, but China accused the US of "fabricating facts" and warned Washington to drop the prosecution.
The spat sparked fears that efforts to resolve a simmering trade conflict may yet be derailed.
"A potential US government shutdown and US accusations of Chinese hacking fuelled existing market concerns about economic growth," said Michael McCarthy, chief market strategist at CMC Markets and Stockbroking.
Crude added to anxiety on financial markets, with the American benchmark at one point sinking below $46 a barrel, its lowest level since July 2017.
Both WTI and Brent recovered some losses in Asian trade Friday, but analysts say fears over demand and oversupply are likely to continue downward pressure on prices.
"To say things are a bit negative out here could be a significant understatement... compounded by OPEC's seemingly rudderless efforts in these turbulent waters," said Stephen Innes, head of Asia-Pacific trade at OANDA.
He added "the latest production cuts are not sufficient to right the ship".
'Irritable Powell syndrome'
Japanese stocks again bore the brunt of Asian losses Friday, with the Nikkei falling further into bear market territory and regional shares on course for the worst week since October.
Data Friday showed Japanese inflation in November falling to 0.9%, far below the Bank of Japan's two-percent target.
Hong Kong, Shanghai and Sydney were also down.
The greenback fell as investors shunned risk, wallowing near the 111-yen mark and adding to downward pressure on the Nikkei.
Innes quipped currency traders had a case of "irritable Powell syndrome", after the Fed chairman Jerome Powell unnerved equities and the US dollar Wednesday when he said the bank would not change course on reducing its balance sheet.
Markets sank across the world even as the Fed predicted two interest rate increases next year - down from three - with the bank trimming its forecast for US growth and inflation.
"The risks are that this weakness that we're seeing will continue into next year," Shane Oliver, head of investment strategy at AMP Capital Investors, told Bloomberg TV.
"The Fed should come out and say, if need be, we can adjust the rate at which we undertake quantitative tightening. That would go a long way to help settle markets."
US Treasury Steven Mnuchin said Wall Street's response to the Fed's move went too far but European equities also closed lower Thursday.
The pound earlier trimmed a gain after the Bank of England forecast inflation slowing to below the two percent target as soon as January.
Investors are also awaiting later Friday the latest US personal income and spending data, along with a gauge of inflation.
*Bloomberg News contributed to this story
