LONDON - Asian and European stock markets fell Tuesday as investors dumped risky equities on spiking US-China tensions over a possible visit by House Speaker Nancy Pelosi to Taiwan.
"Tensions ramped up on reports that Pelosi is due to visit Taiwan later this evening," noted CMC Markets analyst Michael Hewson.
Traders were already skittish after a string of data showed economies beginning to take a hit from surging inflation and central bank interest rate hikes aimed at taming prices.
A possible meeting between Pelosi and Taiwanese President Tsai Ing-wen is sure to anger Beijing, which views the island as its territory and has said the White House was playing "with fire".
While observers do not think the move will spark a conflict, US officials said China was preparing possible military provocations that could include firing missiles in the Taiwan Strait or "large-scale" incursions into Taiwan's airspace.
Heightened tensions between the world's two superpowers have sent shivers through trading floors, compounding worries that Russia's invasion of Ukraine could escalate into a wider war.
INVESTORS 'VERY NERVOUS'
"We're seeing more risk aversion as Nancy Pelosi's trip to Taiwan generates numerous unsettling headlines at a time of strained ties between the US and China," said OANDA analyst Craig Erlam.
"Pelosi's proposed visit has been met with numerous threats from Beijing including an unspecified military response.
"They have continued this morning, hours ahead of the apparent arrival which is clearly making investors very nervous."
Reports of the visit hit US stocks, with all three main indexes reversing an early rally to end in negative territory.
And Asia followed suit, though some markets recovered as the day wore on.
Hong Kong and Shanghai led losses, shedding more than two percent, while Taipei was off more than one percent along with Tokyo.
In Europe, Frankfurt fell 0.8 percent and Paris shed 0.6 percent, while London dipped just 0.2 percent with losses tempered partly by news of oil giant BP's soaring profits.
The safe-haven yen jumped to a two-month high against the dollar.
The Taiwan dollar meanwhile sank to its lowest since April 2020 before bouncing back.
The flare-up in tensions comes less than a week after US President Joe Biden and Xi Jinping held phone talks during which the Chinese leader warned the United States not to "play with fire".
The market selloff comes as investors try to assess the outlook for the global economy as leaders try to bring down sky-high inflation by lifting rates while at the same time maintaining growth.
Oil prices extended Monday's steep losses that were fuelled by falling demand expectations.