US Federal Reserve Chairman Jerome Powell said on Thursday that a half-point interest rate increase would be "on the table" when the Fed meets in May, adding it would be appropriate to "be moving a little more quickly".

His remarks strengthened market expectations of at least another half-percentage-point rate hike next month, and Nomura now expects 75-basis-point hikes at the Fed's June and July meetings, which would be the biggest since 1994.

European Central Bank (ECB) officials said on Thursday that the central bank might start hiking euro zone rates as early as July, while Bank of England interest rate-setter Catherine Mann said that borrowing costs would probably have to rise further.

Euro zone money markets now fully price in a 25-basis-point rate hike by July.

"The Fed, the ECB and the Bank of England were pushing hawkish commentaries on the markets and markets have reacted," said Monica Defend, head of Amundi Institute, though she added:

"For the euro area, we are more skeptical on the fragility of the economic cycle, there is big potential for a recession to take place in Germany and Italy."

The euro zone is feeling the impact of the war in Ukraine.

The mayor of Mariupol made a new appeal on Friday for the "full evacuation" of the southern Ukrainian city which President Vladimir Putin says is now controlled by Russian forces.

Markets are also watching out for euro zone and US flash purchasing managers' data for April, with French data showing business activity grew at the fastest pace in more than four years, helped by fewer COVID-19 restrictions.

MSCI's world equities index was down 0.41 percent at its lowest since mid-March and was heading for a 0.7 percent drop on the week.

S&P futures were 0.18 percent softer after Wall Street indexes fell on Thursday, with the S&P 500 down 1.5 percent and the Nasdaq down 2 percent.

European stocks dropped 1.06 percent, with France's CAC 40 down 1.39 percent ahead of Sunday's presidential run-off vote. Britain's FTSE fell 0.52 percent.

Selling pressure persisted in bond markets, driving five-year US Treasury yields to 3.049 percent and two-year yields to 2.7620 percent, both at their highest since late 2018.

German two-year yields rose to 0.211 percent, their highest since early 2014.

In currency markets, the yuan hit a seven-month low and was on course for its worst week since 2019, as lockdowns in Shanghai take a bite out of growth.

Analysts at HSBC say a comprehensive easing package on all fronts, both monetary and fiscal, from Beijing is needed, including loosening measures in the property sector, which has been hit hard by restrictions on access to credit.

The dollar was down 0.25 percent against the yen at 128 after talk of joint Japan-US FX intervention, though the euro fell 0.29 percent against the dollar to $1.0805, giving up Thursday's bounce as nerves about Sunday's French presidential election creep in.

The US dollar index rose 0.26 percent towards recent two-year highs.

Sterling fell to its lowest since late 2020 against the dollar, after British retail sales dropped in March by more than expected.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent to a five-week low, weighed down by a 1.6 percent loss for Australia's resource-heavy index and a 0.86 percent drop in South Korean shares.

Japan's Nikkei declined 1.63 percent.

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