Asian stocks fell and government bonds climbed on Monday after oil prices surged to a record high of $139 a barrel and data suggested the world's largest economy is creeping perilously closer to stagflation.
UK and major European stock markets were expected to open as much as 1 per cent lower, according to financial bookmakers, as high oil prices took their toll on expectations of
consumer demand and business investment.
"The factors depressing the market, namely inflation and the global economic downturn, are not going to just go away," said Lee Young-su, a market analyst at Daewoo Securities in South Korea.
The US unemployment rate posted its steepest one-month rise in 22 years, figures on Friday showed, increasing fears of a replay of the 1970s when a spike in inflation coincided with a period of stagnant economic growth.
In their biggest one-day increase ever, oil prices jumped almost $11 on Friday, sparking the largest single-day selloff on Wall Street since February 2007 The combination of soaring energy prices and signs of economic instability overseas hit Asian stock markets, which were still trying recover from double-digit inflation rates in some parts of the region.
Japan's Nikkei finished 2.1 per cent lower, its largest decline in two weeks, with exporters such as camera manufacturer Canon Inc and auto maker Honda Motor Co paving the way lower. Honda lost 3.4 per cent while Canon tumbled 4.4 per cent on fears that nervous consumers will rein in spending.
The MSCI index of Asia-Pacific stocks outside of Japan fell 1.1 per cent by mid-afternoon, taking year-to-date losses to 11.2 per cent.
Shares in the tech-heavy TAIEX in Taiwan declined 1.8 percent, while Korea's KOSPI was down 1.3 per cent.
Financial markets in Australia, China, Hong Kong and the Philippines were closed for public holidays.