Fresh cracks appeared in global markets on Thursday as investors sought the safety of Japanese yen, gold and top-rated bonds while dumping US dollars on bets the Federal Reserve could be done raising interest rates.

Even the absence of Tokyo for a holiday could not stop the dollar from hitting a 15-month low on the yen, and gold finally broke major chart resistance to reach its highest since May.

Insatiable demand for US Treasuries drove longer-term yields to one-year lows and flattened the yield curve in a way that has presaged economic recession in the past.

"In some ways it is reminiscent of 2008 with tightening credit markets, bank shares under pressure and worries central banks are powerless," said Shane Oliver, head of investment strategy at AMP Capital, though he suspects markets are being overly pessimistic this time.

The flight from risk told on Asian shares, with Hong Kong diving 3.8 per cent as investors there returned from the long Lunar New year holidays.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 1.1 per cent, and South Korea re-opened with a 2.4 per cent drop.

EMini futures for the S&P 500 fell 0.6 per cent.

Wall Street had ended Wednesday mixed after Fed Chair Janet Yellen sounded optimistic on the US economy, but acknowledged risks from market turmoil and a slowdown in China.

Analysts took that to mean a hike in March was unlikely, but further tightening remained possible later in the year.

"Yellen made it clear that while the Fed still expects to continue on its gradual tightening path, policy was not on a pre-set course and would respond appropriately to developments," said Justin Fabo, a senior economist at ANZ.

"The real test may come later, if markets continue to deteriorate and look to central banks to save them. Are policymakers' guns loaded with blanks?"

YIELDS FLATTENED

It seemed some were already preparing for the worst.

Longer-term US debt rallied hard as investors wagered that either the Fed would be unable to tighten at even a gradual pace, or that if it did hike it would only hasten the arrival of recession and deflation.

In a marked turnaround, yields on 10-year Treasuries fell to 2.673 per cent, from a top of 2.773, almost exactly matching the lowest close from February last year.

That in turn narrowed the spread over two-year paper to just 98 basis points, the smallest gap since late 2007 just before the global financial crisis hit.

Likewise, Fed fund futures priced in the shallowest of shallow tightening paths. The market implies a rate of 45 basis points for the end of this year, 60 basis points at the end of 2017 and 90 by the close of 2018.

The steady decline in US yields continued to drag on the dollar, which reached lows last seen in October against a basket of currencies.

The yen was again lifted by safe-haven flows, as befits Japan's position as the world's largest creditor nation. The dollar dove through 113.00 yen to reach depths not visited since November 2014 at 112.55.

The euro also weakened against its Japanese peer, sliding to a near three-week low of 127.50 yen. Against the greenback, the euro held firm at $1.1300 and within reach of a three-month high of $1.13385 set earlier in the week.

The aversion to risk helped lift gold as far as $1,213.00 an ounce, clearing stiff resistance around $1,200.

Oil prices resumed their decline as US crude slid 55 cents to $26.89 a barrel, while Brent futures lost 35 cents to $30.49. – Reuters