Global equities took a beating Friday as China-US tensions intensified, while stalled stimulus talks in Washington fueled fears for the economy as the dollar fell further.

Lingering worries about the impact on businesses of fresh coronavirus outbreaks helped trigger major profit-taking, overshadowing a batch of bright data in Europe.

"It's a sour end to the trading week," said AJ Bell investment director Russ Mould.

European indices were as much as two percent lower at the close, while Wall Street stocks suffered a second straight session in the red.

Earlier in Asia, Shanghai and Hong Kong dived as relations between the world's two superpowers took another bad turn when China ordered the closure of the American consulate in Chengdu in retaliation for the United States shuttering Beijing's diplomatic mission in Houston this week.

The standoff is the latest in a string of issues -- including Hong Kong, coronavirus and Huawei -- that have dramatically worsened relations between the superpowers.

Stock markets were also still reeling from Thursday's report of a rise in new jobless claims in the US, which prompted doubts about any ongoing economic rebound there, traders reported.

Hopes that the data would spur US lawmakers to push on with fresh stimulus measures were undermined by the inability of Republicans and the White House to agree on a new relief proposal.

Haven asset gold meanwhile jumped within spitting distance of $1,900 for the first time since late 2011, boosted by economic uncertainty, geopolitical tensions and Federal Reserve monetary easing that has weakened the dollar.

The greenback continued its retreat against the euro and other currencies and could be poised for further weakness, said BK Asset Management's Kathy Lien.

The currency could be in for more volatility next week with the expiration of US supplemental unemployment benefits, the release of second-quarter GDP figures and a Federal Reserve monetary policy meeting, Lien said.

A surprisingly bad GDP figure "could send equities and currencies plunging lower," while Fed Chair Jerome Powell is expected to continue to adopt a dovish line.

"The big question is negative rates -- any mention of that being an option will be bruising for the dollar," Lien said. "Regardless, we expect the greenback to extend its slide before and after the FOMC."

A spike in infections has forced a number of US states to reimpose containment measures, forcing some to close businesses crucial to economic growth
A spike in infections has forced a number of US states to reimpose containment measures, forcing some to close businesses crucial to economic growth AFP / Robyn Beck

New York - Dow: DOWN 0.7 percent at 26,469.89 (close)

New York - S&P 500: DOWN 0.6 percent at 3,215.63 (close)

New York - Nasdaq: DOWN 0.9 percent at 10,363.18 (close)

London - FTSE 100: DOWN 1.4 percent at 6,123.82 (close)

Frankfurt - DAX 30: DOWN 2.0 percent at 12,838.06 (close)

Paris - CAC 40: DOWN 1.5 percent at 4,956.43 (close)

EURO STOXX 50: DOWN 1.8 percent at 3,310.89 (close)

Hong Kong - Hang Seng: DOWN 2.2 percent at 24,705.33 (close)

Shanghai - Composite: DOWN 3.9 percent at 3,196.77 (close)

Tokyo - Nikkei 225: Closed for a holiday

Euro/dollar: UP at $1.1652 from $1.1596 at 2100 GMT

Dollar/yen: DOWN at 105.95 yen from 106.86 yen

Pound/dollar: UP at $1.2791 from $1.2741

Euro/pound: UP at 91.07 pence from 91.02 pence

West Texas Intermediate: DOWN 0.2 percent at $40.97 per barrel

Brent North Sea crude: DOWN 0.4 percent at $43.15