European stocks sank on Thursday after the US Federal Reserve and other central banks in Europe hiked interest rates despite turmoil in the banking sector.
The dollar stumbled on the uncertain Fed outlook while oil also retreated on energy demand worries.
The Fed's quarter-point move, one week after the European Central Bank's hefty half-point increase, was followed Thursday by similar hikes in Britain and Norway.
Wall Street slumped on Wednesday after Fed chief Jerome Powell warned the banking sector crisis was likely to bring "tighter credit conditions for households and businesses" that would affect "economic outcomes".
He also said there needed to be more supervision and regulation of banks to prevent another crisis.
Investors on edge
The Fed, however, signalled that it could soon pause its rate hike campaign as its accompanying statement replaced a previous warning about the need for "ongoing increases" with a conditional one saying "some additional policy firming may be appropriate".
Europe's major stock markets slid on Thursday after a mixed session in Asia.
"Everyone is feeling a little bit edgy – and the shift in tone from the Fed to 'some policy firming may be appropriate' from the previous line of 'ongoing hikes' has just led to more uncertainty," said AJ Bell investment director Russ Mould.
There was also "concern the Fed sees further vulnerabilities in the financial system which are still to be tested", he added.
Market jitters remain over rising interest rates because they are widely regarded as a catalyst behind the collapse of three regional US lenders earlier this month.
Policymakers had faced calls to slow or pause aggressive hiking campaigns after the collapse of regional US lenders Signature Bank, Silicon Valley Bank (SVB) and Silvergate, in the sector's biggest failures since the 2008 financial crisis.
Further vulnerabilities?
"Before the collapse of SVB, signs the Federal Reserve was nearing the end of its rate-hiking cycle would have been cause for the market to put on its party hat and set off some fireworks," Mould said. "Now everyone is feeling a little bit edgy and the shift in tone from the Fed... has just led to more concern the Fed sees further vulnerabilities in the financial system which are still to be tested."
Nerves were also jangled after US Treasury Secretary Janet Yellen declared on Wednesday that authorities were not looking at a blanket increase in deposit insurance for banks.
"Yellen's comments seem to have reignited worries about the US banking system which we thought had been put to bed," IG analyst Chris Beauchamp told AFP. "In hindsight this will seem like a major error," he cautioned.
Investors also fret over higher interest rates because they ramp up companies' loan repayments and increase their costs, while slashing consumers' disposable incomes.
Oil prices dived after a recent rise as traders fret over the effect on demand from more rate hikes and a possible slowdown in economic activity.