And the magnitude of the financial earthquake caused by the crisis was brought home by data showing the British economy shrank 20.4 percent month-on-month in April.

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."

Hong Kong eased 0.7 percent and Tokyo lost 0.8 percent, while Sydney, Mumbai, Singapore and Bangkok all fell between one and two percent. Wellington and Seoul were more than two percent lower. Shanghai was marginally lower while Jakarta was up 0.5 percent.

London opened more than one percent lower after the GDP figures were released but clawed back most of the losses later in the morning, while Paris and Frankfurt were in positive territory.

Still, the losses were shallower than earlier in the day and much lighter than on Wall Street on Thursday, where all three main indexes were routed.

The correction that was needed?

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.

"There is an argument to be made that equities were due a decent correction in light of the gains made in the past three months," said David Madden of CMC Markets.

"On the other hand, economies can't stay locked down forever so a jump in the infection rate is going to be the cost of trying to get things back to normal."

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, weighing on energy giants in the region.

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 almost 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.

"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."

Popular

Stocks sink, oil surges on reports of Middle East attacks

Israel launches strike against Iran: US media

North Sulawesi volcano eruption forces evacuations, airport closure