Global equity markets fell while US Treasury yields rose on Friday following stronger-than-expected economic data that stoked worries the Federal Reserve will prolong its interest rate hiking cycle.
Commerce Department data showed that consumer spending, which accounts for two-thirds of US economic activity, rose by 1.8 per cent in January, the largest increase in nearly two years and exceeding analyst estimates, according to a Reuters poll.
Furthermore, the personal consumption expenditures price index, the Fed's preferred inflation measure, accelerated by 0.6 per cent last month, the biggest increase in six months, bringing the index to 5.4 per cent for the 12 months through January.
The strong data deepened a market sell-off across most equities, with the MSCI world equity index, which tracks shares in 50 countries, shedding 1.17 per cent. European stocks fell 1.04 per cent.
"The fact we've got another data item that shows the economy is not slowing enough to hopefully give the Fed confidence that they're in front of the inflation problem - that's why the market is down," said Robert Stimpson, portfolio manager at Oak Associates Funds in Akron, Ohio.
On Wall Street, all three major indexes posted their biggest weekly drop of the year, led by a sell-off of stocks in so-called cyclical sectors including technology, communication services, consumer discretionary, and even healthcare.
The Dow Jones Industrial Average fell 1.02 per cent to 32,816.92, the S&P 500 lost 1.05 per cent to 3,970.04 and the Nasdaq Composite dropped 1.69 per cent to 11,394.94.
US Treasury yields jumped, with benchmark 10-year yields hitting 3.9452 per cent, and two-year yields, which are highly sensitive to Federal Reserve policy, rising as high as 4.8156 per cent, the highest since November 4.
"The risk to the market is that it was premature in its anticipation of a Fed pivot. The Fed is going to continue raising interest rates higher than people think and for longer than people think," Mr Stimpson added.
Oil prices edged higher in volatile trade, bolstered by the prospect of lower Russian exports but pressured by rising inventories in the US and concerns over global economic activity.
Brent crude futures settled at $83.16 a barrel, up 1.2 per cent. West Texas Intermediate US crude futures settled at $76.32 a barrel, rising 1.2 per cent. The US dollar strengthened against other major currencies, with the dollar index up 0.65 per cent at a seven-week high and the euro down 0.48 per cent at $1.0544.
Gold prices dropped to their lowest levels in eight weeks, pushed down by the stronger dollar and higher bond yields. Spot gold dropped 0.6 per cent to $1,810.97 an ounce, while US gold futures fell 0.47 per cent to $1,810.20 an ounce.