Asian shares extended losses after North Korea conducted its fifth and most powerful nuclear test on Friday, heightening geopolitical tensions in the region at a time when investors are grappling with slowing global growth.
Stocks were already on the back foot when the North Korean news rattled markets, with uncertainty over the prospect of further easing from the European Central Bank pressuring global equities and bonds.
European shares look set to follow Asia lower, with financial spreadbetters expecting Britain's FTSE 100, Germany's DAX and France's CAC 40 to all open down 0.1 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5 per cent after touching a 13-month high on Thursday. The decline shrank gains for the week to 2.5 per cent.
Japan's Nikkei closed flat after pulling back earlier on reports of the North Korean nuclear test. It up 0.2 per cent for the week.
North Korea's nuclear test set off a blast that was more powerful than the bomb dropped on Hiroshima, with the nation saying it had mastered the ability to mount a warhead on a ballistic missile.
South Korea's KOSPI also extended losses on its neighbour's nuclear activity. After opening 0.7 per cent lower, it was last trading down 1.3 per cent from Thursday's close.
China's CSI 300 index was 0.25 per cent lower, and the Shanghai Composite was down 0.2 per cent. They are set for gains of 0.7 per cent and 1 per cent, respectively, for the week.
China's consumer price inflation slowed to its weakest pace in almost a year in August, missing expectations.
Still, moderating declines in the producer price index added to recent evidence of a steadying economy.
That evidence included data on Thursday showing China's imports rose unexpectedly in August for the first time in nearly two years, suggesting domestic demand may be picking up. Exports also showed signs of improvement, falling less than expected.
Hong Kong was the sole gainer among major Asia ex-Japan markets, with shares up 1.4 per cent, extending their weekly advance to 4.2 per cent, the most in almost two months. The market has been buoyed by inflows from China as investors bet on gains ahead of the launch of a new cross-border share link.
On Thursday, ECB President Mario Draghi, speaking after the central bank kept its policy on hold as expected, said the ECB was looking at options to continue its money-printing programme, but maintained the March end-date for asset purchases.
That disappointed investors who were looking for more immediate action, including an extension or expansion of the current plan, or at least clearer hints of future actions.
"President Draghi's comment that an extension of the current quantitative easing programme was not discussed led to a hawkish market interpretation of the meeting," Shane Oliver, head of investment strategy at AMP Capital in Sydney, wrote in a note.
However, inflation levels that remain below target and various other dovish comments from Draghi "indicate that an extension of the quantitative easing programme beyond its March 2017 expiry at its December meeting is likely," Oliver added.
Overnight on Wall Street, the S&P 500 lost 0.22 per cent, weighed down by a 2.6 per cent fall in Apple on disappointment over its latest iPhone, though gains in energy shares offset losses in most other sectors.
German shares bore the brunt of the ECB's let-down, and France also retreated, but shares in Britain and Southern Europe gained.
Global bond markets also took a hit with the 10-year German Bund yield rising to minus 0.055 per cent from minus 0.118 per cent on Wednesday.
US bond yields also jumped, with the 30-year bond yield rising to one-month highs of 2.328 per cent on Thursday. They pulled back slightly to trade at 2.3102 on Friday.
The euro climbed to $1.1328, its highest since Aug. 26, following the ECB meeting before giving up most of its gains to stabilise around $1.1282. It is set for a 1.1 per cent rise this week.
The dollar retreated 0.3 per cent to 102.145 yen, surrendering some of Thursday's gains resulting from the wider gap between US and Japanese bond yields. It is poised to end the week 1.8 per cent weaker.
With the ECB meeting out of the way, the focus now shifts back to the Fed's policy meeting later this month.
"A rate hike in September is highly unlikely," said Hiroko Iwaki, senior bond strategist at Mizuho Securities.
"But unless the Fed sends a message, it will be difficult for them to make the markets price in a rate hike by the end of the year. So they could say something like they will consider a hike in coming months," she said.
Oil prices pulled back after surging more than 4 per cent on Thursday to two-week highs on a slump in US Gulf Coast imports to a record low led to a surprisingly large drawdown in US crude stocks.
Brent rose to as high as $50.14 per barrel on Thursday. It pulled back 0.9 per cent to $49.54, still up 5.8 per cent this week.
US crude climbed as high as $47.75 on Thursday. It retreated 0.8 per cent to $47.22, but remained on track for a 6.3 per cent advance for the week.
The weakness in the US dollar this week has offered gold a boost. Spot gold has risen 1 per cent to $1,337.95 this week, the biggest weekly gain in six weeks.