Japan's benchmark Nikkei 225 was up 0.8% in morning trading to 28,062.99, after gyrating earlier in the session. South Korea's Kospi jumped 1.1% to 2,869.67. Australia's S&P/ASX 200 dipped 0.4% to 7,229.40. Hong Kong's Hang Seng gained 1.3% to 23,787.71, while the Shanghai Composite was little changed, inching down less than 0.1% to 3,563.03.
The detection of the omicron variant in Japan, as well as Brazil, announced Tuesday, has raised fears that further measures to contain infections would squelch tourism and other economic activity. Experts say it may take weeks before they know more details about whether the omicron variant causes serious illness.
Anderson Alves, a trader at ActivTrades, said Asian markets were nervous after an overnight slide on Wall Street and comments from Moderna's CEO that existing COVID-19 vaccines may be less effective with omicron than earlier variants.
“Traders will look for new insights regarding the new variant and its impact on the current vaccine framework,” Alves said.
Wall Street's losses deepened after the head of the Federal Reserve said it will consider shutting off its support for financial markets sooner than expected.
The S&P 500 fell 1.9%, erasing its gains from a day earlier. The sell-off accelerated after Fed Chair Jerome Powell told Congress the central bank may halt the billions of dollars of bond purchases it’s making every month “perhaps a few months sooner.” It had been on pace to wrap up the purchases, meant to goose the economy by lowering rates for mortgages and other long-term loans, in June.
An end to the purchases would open the door for the Fed to raise short-term interest rates from their record low of nearly zero. That in turn would dilute a major propellant that has sent stocks to record heights and swatted away concerns about an overly pricey market. As investors moved up their expectations for the Fed's first rate hike following Powell's remarks, yields on short-term Treasuries rose.
Losses for stocks mounted quickly, with the drop for the Dow Jones Industrial Average more than tripling in half an hour as it sank 711 points. The blue chip index ended down 652.22 points, or 1.9%, at 34,483.72.
The Nasdaq composite held up slightly better than the rest of the market, shedding 245.14 points, or 1.6%, to 15,537.69. Higher interest rates tend to hurt stock prices broadly, but they hit hardest those seen as the most expensive or banking on big profit growth the furthest in the future. Such companies play a bigger role in the Nasdaq than other indexes. Microsoft fell 1.8% and chipmaker Nvidia slid 2.1%.
The whammy on interest rates came after stocks were already weak in the morning due to concerns about how badly the fast-spreading omicron variant of the coronavirus may hit the global economy.
Much is left to be determined about the variant, including how much it may slow already gummed-up supply chains or scare people away from stores. That uncertainty has sent Wall Street through up-and-down jolts as investors struggle to handicap how much economic damage omicron will ultimately do.
“There will be heightened volatility around any piece of information,” said Kristina Hooper, chief global market strategist at Invesco. She said markets will likely remain cautious "before we know more.”
The S&P 500 dropped 88.27 points to 4,567. The benchmark index sank 2.3% Friday for its worst loss since February, only to rise 1.3% Monday as investors reconsidered whether the reaction was overdone, before giving way to Tuesday's loss. The index closed out November with a 0.8% loss. That follows a 6.9% gain in October and a 4.8% drop in September. The index is now up 21.6% for the year.
One measure of nervousness in the stock market jumped almost 19% Tuesday, nearing its level from Friday, when it touched its highest point since March. Much of the rise occurred after Powell began speaking.
Gold usually does well when fear among investors is rising, but its price slipped 0.5%. Higher interest rates could reduce the appeal of gold, which doesn’t pay its holders any interest.
If omicron does ultimately do heavy damage to the global economy, it could put the Federal Reserve in a difficult spot. Usually, the central bank will lower interest rates, which encourages borrowers to spend more and investors to pay higher prices for stocks.
But low rates can also encourage inflation, which is already high across the global economy. Powell acknowledged in his testimony before Congress that inflation has been worse and lasted longer than the Fed expected. For months, officials described inflation as only “transitory,” but Powell said that word no longer works.
The subsequent losses for stocks Tuesday were widespread, with all but seven stocks in the S&P 500 ending lower. Apple rose 3.2% for the biggest gain in the index.
Smaller stocks also took heavy losses. The Russell 2000 index slid 43.07 points, or 1.9%, to 2,198.91. Investors typically see them getting hurt more than their larger rivals by both higher interest rates and by a weaker U.S. economy.
One signal in the bond market was also flashing some concern about the economy's prospects. Longer-term Treasuries usually offer higher yields than shorter-term Treasuries, in part to make up for the increased risk that future inflation may eat into their returns.
A 10-year Treasury is still offering more in yield than a two-year Treasury, but the gap narrowed sharply on Tuesday. The two-year yield rose to 0.54% from 0.51% late Monday. The 10-year yield, meanwhile, fell to 1.45% from 1.52%.
In energy trading, benchmark U.S. crude added $1.42 to $67.60 a barrel. Brent crude, the international standard, fell $2.87 to $70.57 a barrel.
In currency trading, the U.S. dollar gained to 113.44 Japanese yen from 113.18 yen. The euro cost $1.1322, down from $1.1339.
AP Business Writers Damian J. Troise, Stan Choe and Alex Veiga contributed.