Equity markets in Asia and Europe were mixed Friday as traders struggled to track another Wall Street rally, with below-par US data easing expectations for a sharper pace of interest rate hikes but adding to recession worries.
The euro gave back most of the gains enjoyed after the European Central Bank ramped up borrowing costs more than forecast, with energy concerns and Italian political turmoil fuelling worries of a recession in the currency union.
Investors have had a rollercoaster week as they try to gauge the outlook with earnings so far relatively positive but economic data mixed and geopolitical events clouding sentiment.
All three main indexes in New York enjoyed strong days thanks to a bump in tech firms, while another bigger-than-expected rise in US jobless claims indicated that higher Federal Reserve rates and a spike in inflation could be kicking in.
The reading -- along with a big miss on the closely watched Philadelphia Fed business survey -- could allow the central bank to pull back from its campaign of monetary tightening sooner, giving some relief to the world's top economy.
The figures also suggested, however, that recessionary threats were rising and showed that the Fed has a tough task of doing enough to bring inflation down from four-decade highs while also nurturing fragile growth.
Analyst Tapas Strickland said July data was considered volatile owing to seasonal adjustments, but that the higher jobless claims were "consistent with growing anecdotes of hiring freezes and layoffs at several multinational companies" such as Google, Apple and Microsoft.
"A loosening labour market is being sought after by the Fed to put downward pressure on inflation, but with inflation remaining high we shouldn't expect any pivot from the Fed," he added.
Tech firms had enjoyed a broadly positive reporting season, he said, but for those in the "non-tech and non-financial sectors guidance has been weak on the outlook and consistent with a slowing economy".
Asian markets started brightly but lost some of their lustre as the day wore on.
Tokyo, Hong Kong, Mumbai, Taipei, Singapore, Manila and Jakarta all posted gains but were off their highs, while Sydney was flat, and Shanghai, Wellington and Seoul edged down.
London, Frankfurt and Paris fluctuated in early trade.
OANDA's Jeffrey Halley warned the Fed's meeting next week was a major event on the calendar.
"The statement will be crucial and, depending on how it plays out, could stop what I consider a bear market rally, in its tracks," he said in a note.
"Inflation remains and will remain stubbornly high, geopolitical risk abounds, growth is slowing around the world, and recession risks are rising. I can’t see how that is a productive environment for equities, and that’s before the rest of big-tech reports quarterly earnings."
The euro dropped after enjoying a bounce Thursday in response to the ECB's decision to lift rates by 50 basis points, double what was expected, in a bid to rein in runaway inflation.
The move brings an end to the bank's eight-year-old negative interest rate policy and is more in line with its global peers, particularly the hawkish Fed.
However, the single currency -- which has recovered after hitting dollar parity last week -- suffered fresh selling Friday as a fresh batch of figures showed eurozone economic activity contracted in July.
It will face further pressure with US borrowing costs likely to jump again after the Fed's meeting next week.
Fresh political upheaval in Italy -- with the downfall of Prime Minister Mario Draghi's government -- will provide another headache for the ECB, which also has to contend with the constant threat of an energy crisis.
While Russia on Thursday resumed gas flows to Europe after a 10-day maintenance shutdown, leaders fear Vladimir Putin could at any time switch off the Nord Stream 1 pipeline in retaliation for sanctions on Moscow related to the invasion of Ukraine.
- Key figures at around 0810 GMT -
Tokyo - Nikkei 225: UP 0.4 percent at 27,914.66 (close)
Hong Kong - Hang Seng Index: UP 0.2 percent at 20,609.14 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,269.97 (close)
London - FTSE 100: FLAT at 7,271.85
Euro/dollar: DOWN at $1.0150 from $1.0232 on Thursday
Pound/dollar: DOWN at $1.1925 from $1.2002
Euro/pound: DOWN at 84.99 pence from 85.22 pence
Dollar/yen: UP at 137.61 yen from 137.34 yen
West Texas Intermediate: DOWN 0.4 percent at $95.97 per barrel
Brent North Sea crude: DOWN 0.4 percent at $103.46 per barrel
New York - Dow: UP 0.5 percent at 32,036.90 (close)