Europe's share markets and the euro have both taken a tumble as a report that Italy's long-awaited budget was facing a delay compounded an already groggy global mood after the third US interest rate rise of the year.
Italy's main Milan bourse slumped as much as 2 percent with the country's big banks down even more as the country's borrowing costs also hit a three-week high in the government bond markets.
Investors have been anxious about Italy's budget which some fear could lead to a blowout of the country's deficit, and put the coalition government on a collision course with the European Union.
Rome confirmed that a cabinet meeting over budget targets was still planned for later, dismissing an earlier report in the Corriere della Sera newspaper that it could be delayed.
But it couldn't soothe the markets, especially after the economy ministry was forced to deny its chief Giovanni Tria, an academic who doesn't belong to any one party, had threatened to resign.
"It is very fluid and it is changing by the minute it seems," head of EMEA macro strategy at State Street Tim Graf said.
"Even if things get resolved positively today, Italy is not a situation that is going to go away," he added, pointing to the growing popularity of the country's fractious anti-establishment coalition government.
The strains weighed on the rest of Europe too, with the STOXX 600 still in the red despite an attempted rebound and the euro down 0.25 per cent in the currency markets having skidded all the way down to $US1.17 .
That fall also gave the dollar a boost after it had only managed a lazy gain after the Federal Reserve hiked US interest rates on Wednesday by another 25 basis points to a range of 2 percent to 2.25 percent.
The dollar index which measures the greenback against a basket of currencies, was last up 0.4 percent to 94.529.
The index had scaled a 13-month high in mid-August, drawing safe-haven demand as trade tensions buffeted riskier emerging market currencies. The index has since fallen about 2.8 percent though as investors have become more nuanced in their views.
Fed ratesetters still see another rate hike in December, three more next year, and one increase in 2020.
Wall Street futures pointed to a broadly steady start having largely expected the move with traders also getting the taste for Apple again after JP Morgan started coverage of the iPhone giant with an "overweight" buy rating.
The Australian dollar seen as a barometer of global investor risk appetite and Chinese demand, fell 0.4 per cent to $US0.7226, its lowest since Sept. 19 and not far off its 2-1/2 year lows of $US0.7085 hit earlier this month.
Overnight, MSCI's index of Asia-Pacific shares outside Japan had ended lower. There were, however, pockets of resilience such as South Korea's Kospi, which hit three-month highs, as it resumed trade after a three-day public holiday.
Japan's Nikkei briefly touched an eight-month high too as signs that the United States may not impose further tariffs on Japanese automotive products for now lifted carmakers, though the index eventually ended down 1 per cent.
With the Fed's steady message still fresh in the mind 10-year US Treasuries yields fell to 3.05 percent, from Tuesday's four-month high of 3.113 percent when traders had been expecting a more hawkish signal for the US central bank.
FOMC members did drop a description of its policy stance as "accommodative", but Fed Chairman Jerome Powell then downplayed the significance of the change at a news conference saying rates were still generally accommodative.
Falling Treasury yields were good news for emerging markets. Plenty of EM currencies were firmer despite the dollar's broader gains against the likes of the euro.
Turkey's lira was back up to 6 per dollar for the first time in almost two week despite data showing that confidence among businesses had seen its biggest month on month slump in a almost decade.
EM currencies have been pressured for months by concerns that higher US yields would encourage investors to move funds out of those economies back into the US that's on top of worries over the US-China trade feud.
Indeed, the Philippino finance minister warned the world will be in "deep kimchi" if the current trade war drags on. The country's central bank raised its rates for a fourth straight meeting on Thursday in an effort to stem the slide in its currency.
Rising oil prices are another major pressure point for energy importers and they gained again ahead of US sanctions coming into force on Iranian exports due in November.
Global benchmark Brent was 0.7 percent at $US81.88 per barrel, near the four-year high of $US82.55 set on Tuesday. West Texas Intermediate (WTI) crude futures gained 1 percent to $US72.34 a barrel.
"The real big impact is the fuel price...that is what is really worrying me," Philippines finance minister Carlos Dominguez told Reuters.