Stocks extended a global slide as traders rushed to grab haven investments, such as gold, after Thursday’s deadly attack in Barcelona coupled with rising uncertainty over the US administration.
"The recent shift towards haven markets continues," said Joshua Mahony, market analyst at IG trading group.
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David Madden, analyst at CMC Markets UK, noted that "the combination of political uncertainty in the US and security concerns in Europe are weighing on investor sentiment".
Approaching the halfway mark in Europe, the main stock indices in London, Paris and Madrid were each down 1.0 per cent compared with Thursday's closing levels.
Gold, seen as a store of value in uncertain times, jumped to a 2.5-month high at US$1,298.08 an ounce, while the yen strengthened against the dollar and struck a near-seven week high versus the euro.
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"While the week started well, we are now seeing widespread selling for global stocks, with traders instead choosing to shift their focus towards the likes of gold and the yen," added Mr Mahony.
Still, some investors said the selloff is a temporary development. Neither the terrorist attack in Spain nor political turmoil in the US should create a trend, said Naoki Fujiwara, chief fund manager of Shinkin Asset Management in Tokyo.
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“Both the US and Japanese economies are doing well, and what’s most important is the direction of US monetary policy,” Mr Fujiwara said. “As long as the fundamentals are steady, the market will recover.”
Financial-market reactions to terror have proven increasingly short-lived. Past incidents, such as Madrid’s train bombings in March 2004 and London blasts in July 2005, had spurred declines in equities that were erased days or weeks later. Recoveries have been swifter in recent years.
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Following June’s weekend attack on London Bridge, the FTSE 100 Index fell just 0.3 per cent, while Sweden’s OMX Stockholm 30 Index closed 0.4 per cent higher after an attack in April.
Whether that recent history will repeat itself in the days ahead may depend as much on whether or not Trump can restore faith in the so-called Trump trade, said Michael Hewson, an analyst at CMC Markets in London.
The CBOE Volatility Index on Thursday shot up 32 per cent, nearing the high it reached last week after the “fire and fury” remarks escalated a standoff with North Korea. A gauge of euro-area stock swings on Friday climbed as much as 20 per cent. The Stoxx 600 has fallen 5.6 per cent since a peak in mid-May, weighed down by a stronger euro and geopolitical tensions between US and North Korea last week.
*Wires