A decision by President Donald Trump's administration to ban WeChat and video-sharing app TikTok from U.S. app stores starting Sunday night raised concerns about a new front in continuing China-U.S. political tensions.
"The diplomatic tug of war is not being resolved," said Boris Schlossberg, managing director of FX strategy at BK Asset Management. "The tensions are heightening rather than easing. That's not something the market likes to see."
The Japanese yen strengthened 0.22% versus the greenback at 104.49 per dollar, after earlier gaining to 104.270 - its strongest level against the U.S. currency since July 31.
The dollar index rose 0.01%, with the euro up 0.04% at $1.1852.
Worries about rising coronavirus cases and a patchy economic recovery weighed on sentiment. An expected rotation into value stocks from growth and momentum has yet to fully materialize, said Yousef Abbasi, global market strategist at StoneX.
"There really isn't a value sector that's positioned to take the reins and lead," Abbasi said. "There's a lack of a catalyst to force people to look more seriously at value as leadership."
MSCI's benchmark for global equity markets fell 0.76% to 565.85, while in Europe, the broad FTSEurofirst 300 index closed down 0.62% at 1,429.67.
A resurgence in coronavirus cases is the biggest threat to the recovering euro zone economy, according to a Reuters poll of economists, who say growth and inflation are more likely to cause negative surprises over the coming year than positive ones.
Roughly 30 million people have been infected by the virus worldwide and more than 900,000 have died, triggering some of the deepest recessions on record and disrupting global supply chains.
"The COVID-19 infection rate in Europe has gotten pretty bad," said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta. "The implications are that it's difficult to curtail the virus."
Investors ignored a report that showed U.S. consumer sentiment increased in early September, with Democrats more upbeat about the economy's outlook compared with Republicans ahead of the Nov. 3 presidential election.
On Wall Street, the Dow Jones Industrial Average .DJI fell 1.09%, the S&P 500 lost 1.38% and the Nasdaq Composite dropped 1.54%.
No major economic data was expected until the release of September's unemployment report on Oct. 2, leaving investors without a compass.
U.S. Treasury yields were little changed near the middle of recent trading ranges as government-bond investors once again took their cue from equity markets.
The benchmark 10-year U.S. Treasury note traded at 0.6937%.
Euro zone government bond yields also traded little changed as expectations of more central bank policy easing coupled with concerns about the economic recovery underpinned sentiment.
Safe-haven German 10-year bond yields were up 0.3 basis point at -0.488%.
Investors piled into emerging markets assets, with an index of developing countries' currencies poised for its biggest weekly gain since early June as developing country debt funds enjoyed their 11th straight week of inflows.
Copper touched its highest in more than two years as speculators extended their buying spree on the economic recovery in top metals consumer China while the dollar weakened.
China has been a major beneficiary of investment flows as the country is the most attractive market for asset managers with cash to allocate, according to fund flow tracker EPFR.
Stocks overnight in China made their strongest gains in three weeks, with the CSI300 index adding 2.2%, led by financial companies.
Gold prices gained, buoyed by a weaker dollar and concerns over the economic recovery that were underscored on Thursday by the elevated weekly U.S. jobless claims data.
Spot gold prices rose 0.47% to $1,951.81 an ounce.
U.S. gold futures settled up 0.6% at $1,962.10.
Oil prices settled little changed after a Libyan commander said a blockade of Libya's oil exports would be lifted for a month, while the decline in U.S. equities weighed on futures.
Still, both the U.S. and Brent crude benchmarks were set for weekly gains after Saudi Arabia pressed allies to stick to output quotas, Hurricane Sally cut U.S. production, and banks including Goldman Sachs predicted a supply deficit.
Brent crude futures slid 15 cents to settle at $43.15 a barrel. U.S. crude futures rose 14 cents to settle at $41.11 a barrel.
(Reporting by Herbert Lash; additional reporting by Sinead Carew in New York; Editing by Dan Grebler and Jonathan Oatis) ((firstname.lastname@example.org; 1-646-223-6019; Reuters Messaging: email@example.com))