World stocks fell on Thursday and US benchmark 10-year Treasury yields bounced up off of four-month lows, as worries mounted that an aggressive stance by central banks could push the global economy into a slowdown.
Wall Street stocks ended lower on recession worries, while European shares recorded their biggest daily selloff of the year and a global stock index posted a third straight day of declines.
Investors are worried the US Federal Reserve may "overhike into a slowing environment," said Ross Mayfield, investment strategy analyst at Baird.
"This week, sentiment has become a little bit more risk off," he said. "Recession fears have started to become front and center."
A US report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to another month of solid job growth and continued labor market tightness.
The Fed will probably need to raise interest rates to "just above" 5% and hold them there for a period, Boston Fed President Susan Collins said. Other Fed officials have also suggested the need for a hawkish stance to fight inflation.
Earlier, European Central Bank president Christine Lagarde pushed up euro zone bond yields slightly by telling the World Economic Forum's Davos gathering the bank would stay the course with rate hikes.
The Dow Jones Industrial Average fell 252.4 points, or 0.76%, to 33,044.56, the S&P 500 lost 30.01 points, or 0.76%, to 3,898.85 and the Nasdaq Composite dropped 104.74 points, or 0.96%, to 10,852.27.
The pan-European STOXX 600 index lost 1.55% and MSCI's gauge of stocks across the globe shed 0.94%.
Investors digested more quarterly earnings reports. Procter & Gamble raised its full-year sales forecast and said it plans to continue raising prices.
Also, Netflix shares rose more than 6% in after-hours trading. Co-founder Reed Hastings announced he will step down as chief executive, while the company also released quarterly results.
Benchmark 10-year US Treasury yields edged off four-month lows as they neared a key technical level and the recent bond rally appeared overdone in the near term.
The 10-year yields were last at 3.397%, after earlier dropping to 3.321%, the lowest since Sept. 13. The 200-day moving average was at 3.292%. The yields have fallen from 3.905% at year-end, and from a 15-year high of 4.338% on Oct. 21.
In the currency markets, the dollar fell 0.4% in afternoon trading against the yen to 128.455 yen, a day after the Bank of Japan's decision to stand pat on its ultra-loose monetary policy.
In other data, overall US housing starts declined 1.4% to a rate of 1.382 million units last month. Building permits dropped 1.6% to a rate of 1.330 million units.
The US government hit its $31.4 trillion borrowing limit, with the Republican-controlled House of Representatives in a standoff with President Joe Biden's Democrats on lifting the ceiling. Failure to resolve the issue could lead to a fiscal crisis in a few months.
Treasury Secretary Janet Yellen informed congressional leaders that her department had begun using extraordinary cash management measures that could stave off default until June 5.
In the energy market, oil prices rose 1%, extending a recent rally amid rising Chinese demand.
Brent crude LCOc1 futures gained $1.18, or 1.4%, to settle at $86.16 per barrel, while US West Texas Intermediate (WTI) crude CLc1 futures rose by 85 cents, or 1.1%, to settle at $80.33 per barrel. Those were the highest closing levels for both contracts since Dec. 1.
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