World stocks and oil prices slid Tuesday after Moderna warned current vaccines might be less effective at fending off the Omicron variant, and eurozone inflation spiked to a record high.

Frankfurt, London and Paris followed Asia in closing sharply lower, with sentiment dogged by fears of fresh economic fallout from the long-running Covid crisis.

Wall Street saw a significant sell off after Federal Reserve Chair Jerome Powell warned inflation could remain high for longer than expected, and he now advocates accelerating the drawback of its stimulus measures.

That would open the way for it to hike interest rates sooner than markets expected, and end the rally enjoyed during the pandemic, which has been fueled in part by the Fed's easy money policies.

It was a significant shift for the Fed chief who for months said inflation pressures would be transitory.

"Today will go down as the day Fed Chair Powell shed his dovish wings and showed signs of becoming a hawk," said Edward Moya of Oanda.

Oil slumped in New York, with West Texas Intermediate dropping more than five percent before regaining some ground, while Brent lost nearly four percent.

The tumble followed the Moderna remarks, which have reignited fears over how the Omicron variant's spread could hit energy demand.

The European selloff accelerated early in the session as data showed eurozone inflation rocketed on runaway energy prices to a record 4.9 percent.

The United States also is dealing with rising prices, and Matt Weller, global head of research at StoneX, said Powell's comments signal a shift in his view on the issue.

"Reading between the lines, it appears that Chairman Powell has grown dramatically more concerned with the risk of sustained inflation, and is therefore looking to end the central bank's asset purchases sooner than initially outlined," Weller said.

With the US central bank's preferred price gauge seeing a surge of five percent for the 12 months ending in October, well above its two percent goal, Weller said "Powell's comments have already sent a tempest through major markets."

Markets fell sharply last Friday on news of Omicron's discovery, and the bloodletting Tuesday underscored the enduring fear of Covid-19 and its effects on economies globally.

Moderna chief executive Stephane Bancel's comments, in an interview with the Financial Times, sent traders running for cover.

"There is no world, I think, where (the effectiveness) is the same level... we had with Delta," Bancel told the newspaper.

The high number of mutations on Omicron and its swift spread in South Africa indicated the present jabs would need to be tweaked, he said.

Federal Reserve boss Jerome Powell warned Omicron posed a 'downside risks to employment and economic activity, and increased uncertainty for inflation' Federal Reserve boss Jerome Powell warned Omicron posed a 'downside risks to employment and economic activity, and increased uncertainty for inflation' Photo: GETTY IMAGES NORTH AMERICA via AFP / POOL

"It only took one comment from the boss of drugs firm Moderna to derail markets once again," noted AJ Bell investment director Russ Mould.

"Markets hate uncertainty, and this is precisely what we have now. No one knows how much trouble the new variant is going to cause."

In Britain, meanwhile, traders are reassessing hopes of a pre-Christmas interest rate hike.

Prior to Omicron, the Bank of England had been forecast to lift rates to dampen near decade-high British inflation.

New York - Dow: DOWN 1.9 percent at 34,483.72 (close)

New York - S&P 500: DOWN 1.9 percent at 4,567.00 (close)

New York - Nasdaq: DOWN 1.6 percent at 15,537.69 (close)

London - FTSE 100: DOWN 0.7 percent at 7,059.45 (close)

Frankfurt - DAX: DOWN 1.2 percent at 15,100.13 (close)

Paris - CAC 40: DOWN 0.8 percent at 6,721.16 (close)

EURO STOXX 50: DOWN 1.1 percent at 4,063.06 (close)

Tokyo - Nikkei 225: DOWN 1.6 percent at 27,821.76 (close)

Hong Kong - Hang Seng Index: DOWN 1.6 percent at 23,475.26 (close)

Shanghai - Composite: FLAT at 3,563.89 (close)

West Texas Intermediate: DOWN 4.3 percent to $66.95

Brent North Sea crude: DOWN 3.9 percent at $70.57

Euro/dollar: UP at $1.1336 from $1.1291 at 2200 GMT on Monday