SYDNEY - Stocks suffered their sharpest drop in three months in Asia on Friday and oil tumbled after the detection of a new and possibly vaccine-resistant coronavirus variant sent investors scurrying toward the safety of bonds, the yen and the dollar.

MSCI's index of Asia shares outside Japan fell 1.8%, its sharpest drop since August. Casino and beverage shares sold off in Hong Kong, travel stocks dropped in Sydney and Tokyo. Japan's Nikkei skidded 3% and U.S. crude oil futures fell 2.7% amid fresh demand fears.

S&P 500 futures were last down 1% and Euro STOXX 50 futures down 2%.

Little is known of the variant, detected in South Africa, Botswana and Hong Kong, but scientists said it has an unusual combination of mutations and may be able to evade immune responses or make it more transmissible. 

British authorities think it is the most significant variant to date, worry it could resist vaccines and have hurried to impose travel restrictions. 

"You shoot first and ask questions later when this sort of news erupts," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney, as the news rattled currency traders.

Bets on rate hikes also retreated as Fed funds futures 0#FF: rallied and two-year Treasury yields fell 6 basis points, the sharpest drop since March 2020.

South Africa's rand dropped more than 1% to a one-year low on Friday and the risk-sensitive Australian and New Zealand dollars fell to three-month trough.

Japan and Australia each hinted at possible border closures in response to the new variant. 

"Markets are anticipating the risk here of another global wave of infections if vaccines are ineffective," said Moh Siong Sim, a currency analyst at the Bank of Singapore.

"Reopening hopes could be dashed."

Equity selling in Asia has global shares, on course for their worst week since early October. Dow Jones futures fell 1%, while FTSE futures fell 1.9%.

Moves in Treasuries were also sharp at the longer end, with 10-year Treasury yields down eight bps to 1.5618% and 30-year yields  down 7 bps to 1.8963%.

Though that leaves yields inside recent ranges, heat has come out of wagers on the pace of rate hikes and the December 2022 Fed funds futures contract FFZ2 was last up 9 bps.

The yen jumped about 0.6% to 114.67 per dollar and the Aussie was last down 0.6% at $0.7141. The euro edged up 0.1% to $1.1221, as safety rather than policy differentials drove trade in Asia.

The moves come against an already growing backdrop of concern about COVID-19 outbreaks driving restrictions on movement and activity in Europe and beyond.

European countries expanded COVID-19 booster vaccinations and tightened curbs overnight. Slovakia announced a two-week lockdown, the Czech government will shut bars early and Germany crossed the threshold of 100,000 COVID-19-related deaths. 

Shanghai on Friday limited tourism activities and a nearby city cut public transport as China doubles down on its zero-tolerance approach that is also unnerving traders.

(Reporting by Tom Westbrook; Editing by Lincoln Feast.) ((tom.westbrook@tr.com; +65 6973 8284;))