Fed chief Jerome Powell says no evidence United States economy overheating

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The Standard & Poor's 500 index erased almost all of its gains for the year. Major indexes fell more than 10 percent but have since recovered much of that ground.

"I don't know if this will cause a trade war, and obviously that's the fear", said Lamar Villere, portfolio manager at investment manager Villere & Co.

The Stoxx Europe 600 fell 1.3 percent. It had only four such days past year.

The AUD/USD pair slid 0.43 percent to 0.7728.

USA stocks plunged and Treasuries climbed after Donald Trump promised to impose substantial tariffs on foreign metals, drawing a rebuke from a manufacturing industry group. Apple, the most valuable USA company, got 63 percent of its sales from outside the United States in its latest fiscal year. He vowed that "the European Union will react firmly and commensurately to defend our interests". AK Steel jumped 10 percent.

The Standard & Poor's 500 index dropped 41 points, or 1.5 percent, to 2,671.

Heavy equipment maker Caterpillar fell 2 percent and aerospace giant Boeing gave back 4 percent.

Stocks of smaller companies, which tend to do more of their business in the United States and may not feel as much pain from a global trade war, held up better than the rest of the market.

The MSCI All-Country World Index declined 0.5 percent. His comments helped spark a rally for the dollar and Treasury yields, as well as the selloff for equities.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.85 percent.

Asian stocks were mostly lower on Thursday after Wall Street marked its worst monthly performance in two years as hawkish-sounding comments from new Federal Reserve Chair Jerome Powell reverberated across the broader risk asset markets.

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Powell told the Senate Finance Committee that he does not see inflation in workers' wages "at a point of acceleration".

Referring to the wild swings in the stock market that occurred earlier this month, Powell said the Fed does "not see these developments as weighing heavily on the outlook for economic activity, the labor market and inflation". He said that the Fed "has seen incoming data which suggests strength in the economy".

Investors are taking the measure of the Powell Fed as it debates how quickly to raise interest rates with an economy that is growing steadily and receiving new stimulus from tax cuts and spending increases signed by President Donald Trump in December.

Worries about potentially higher rates and inflation have reintroduced markets to volatility following their unusually calm run in 2017 and early this year.

Dental supplies maker Patterson Companies plunged 22 percent after reporting weak earnings for the latest quarter.

The Dow Jones Industrial Average dropped 420.22, or 1.68%, to 24,608.98, sending it into negative territory for the year.

US crude oil futures stood little changed at $61.65 per barrel after sliding more than 2 percent overnight. Brent crude, the global standard, lost 90 cents to $63.83 a barrel.

The Mexican peso lost 0.29 percent versus the US dollar at 18.89, while the Canadian dollar fell 0.39 percent versus the greenback at 1.29 per dollar.

The dollar was little changed at 106.69 yen, having slipped from the week's peak of 107.680 as broader risk aversion favoured its Japanese peer.

That divergence in rate outlooks also weighed on the euro, which hovered at a six-week low at around $1.2173.

Japan's Nikkei 225 lost 1.6 percent, France's CAC 40 fell 1.2 percent and Germany's DAX was down 2.3 percent. The USD/CNY exchanged hands at 6.3408, 0.17 percent higher.