Falling bank stocks drove Asian markets lower on Friday, while bonds rallied and expectations for US interest rate rises were reduced after a surprise capital raising at a Silicon Valley start-up lender unleashed fears of broader banking-system stress.

European and US equity markets looked set to echo those losses when they reopen, with futures pointing lower.

The yen weakened and Japanese government bond yields plunged after the Bank of Japan opted to keep stimulus settings steady at Governor Haruhiko Kuroda’s last meeting in charge, as expected.

The benchmark 10-year JGB yield, which the BOJ pins within 50 basis points either side of zero, pulled back sharply from that ceiling to last sit at 0.445 per cent. The yen was last down about 0.4 per cent at 136.615 per dollar after a knee-jerk drop of as much as 0.6 per cent.

Japan’s Nikkei pared earlier losses to be down 1 per cent after the central bank decision, but selling began later in the session and the index was off 1.62 per cent late in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.7 per cent to a two-month low, with banks and Hong Kong tech stocks leading losses. Australia’s benchmark index S&P/ASX200 lost 2.28 per cent.

S&P 500 futures were down 0.73 per cent, following the cash index dropping 1.8 per cent and falling below its 200-day moving average.

In early European trades, the pan-region Euro Stoxx 50 futures were down 1.56 per cent, German DAX futures was 1.29 per cent and FTSE futures was 1.43 per cent lower.

The US dollar edged higher and short-end Treasuries extended sharp overnight gains - driving two-year yields down another 12 basis points to 4.7837 per cent in Tokyo trading.

Fed funds futures also rallied strongly, pulling the market-implied peak in US rates from above 5.6 per cent to just below 5.5 per cent, and pricing about a 50 per cent chance of a 50 basis points Fed hike this month, down from more than 70 per cent a day earlier.

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The sharp moves followed SVB Financial Group, parent of startup-lender Silicon Valley Bank, noting a higher-than-expected “cash burn” from clients, falling deposits and rising costs of capital. It announced an equity sale hours after crypto-focused lender Silvergate said it was closing down.

SVB stock was still sliding after the bell and has lost about 70 per cent of its value in 24 hours. Shares of big banks were dragged down with it, with J.P. Morgan Chase & Co losing 5.4 per cent, Citigroup down 4.1 per cent and big lenders in Asia and Australia on the slide - albeit to a lesser extent - on Friday morning.

“I think there’s speculation that there are wider problems within the US banking system, or there’s that potential, and that’s caused a re-think of Fed policy,” said ING economist Rob Carnell in Singapore.

“The thinking is that if what the Fed’s doing is causing this distress, then perhaps they won’t be doing that much more,” he said.

“But it’s a big move on the back of what seems to be some fairly woolly speculation...which just shows how antsy the markets are right now, and this has spilled into all the other markets.”

Surprisingly high US jobless claims have offered a weak entree for broader US employment data later on Friday, putting some pressure on recent dollar gains.

The figures loom as a crucial barometer of the health of the US labour market and the direction of interest rates after Fed Chair Jerome Powell warned rates could rise further and faster if data shows that is needed to get a grip on inflation.

Bitcoin was nursing losses just above the psychological $20,000 level as the fallout from the demise of Silvergate weighs on the broader mood in digital assets.

Brent crude futures eased to $81.12 a barrel while gold was pinned at $1,828.97 an ounce.