Asian share markets slipped on Friday as troubles at a small Portuguese bank managed to wrongfoot investors already made anxious by the US earnings season and a spate of disappointing economic data globally.
Tensions in the Middle East also continued to simmer with Israeli officials seeming to hint at a possible assault on Gaza by ground forces.
As a result, yields on safe-haven US and German debt fell, the yen scaled a five-month peak against the euro and gold hit a three-and-a-half month high.
Japan's Nikkei fell 0.7 per cent, while Australia eased 0.4 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent.
Analysts emphasised that the woes of one Portuguese bank were no threat to the sovereign's rating and rather the news served as an excuse to book profits on what has been a long rally in European stocks and bonds.
Indeed, there were signs investors were taking money out of peripheral euro zone debt and seeking higher returns in the emerging world. It was notable that MSCI's index of emerging market stocks actually rose on Thursday having hit a 17-month peak earlier in the week.
In contrast, European stocks were buffeted as trading in Banco Espirito Santo was halted after a 19 per cent drop. The bank's largest shareholder suspended trading in its own shares and bonds due to "material difficulties" at its own largest shareholder.
The damage was all the greater as data showed unsettlingly weak readings for May industrial production in France and Italy. These followed equally disappointing numbers from Germany and the UK, which has led many analysts to cut their estimates of economic growth for the second quarter.
Portugal's market fell 4.2 per cent and Italy's FTSE MIB 1.9 per cent, pulling down the European index by 0.78 per cent.
While the fate of a relatively minor bank in Europe would not normally have had much effect on Wall Street, it was enough to make investors reconsider the market's high valuations as the earnings season gets into full swing.
The S&P 500 index fell 0.41 per cent, while the Dow eased 0.42 per cent and the Nasdaq 0.52 per cent.
The S&P 500 financial sector index fell 0.5 per cent and Wells Fargo & Co, which reports earnings later Friday, lost 0.7 per cent.
With stocks off the boil, Treasuries picked up the usual safe-haven bid for shorter-term debt which is prized for its deep liquidity. Yields on two-year notes fell over 4 basis points to 0.4561 percent, a marked reversal from a high of 0.5360 percent hit just on Wednesday.
German debt played much the same role in Europe, where yields on 10-year bund yields ended at a 14-month trough of 1.20 per cent. Bonds in the euro zone periphery were not so lucky, with yields on Portuguese, Spanish and Italian paper all rising sharply.
The itch for safety benefited the Japanese yen which climbed a full yen to 137.76 per euro. The dollar dipped to 101.26 yen even as it gained on the euro to $1.3599.
Yet the higher-yielding Australian and New Zealand dollars remained well supported, again suggesting there was no widespread retreat from risky assets.
In commodities, gold was up at $1,336.01 having touched a 3-1/2 month top of $1,345.00.
Oil prices fell anew after a brief rally on Thursday. Brent was off 13 cents at $108.54 a barrel, while US crude eased 16 cents to $102.77.
Copyright: Thomson Reuters 2014