US stocks fell on Monday as resilient economic data fuelled concerns that the Federal Reserve may not be able to relent on interest rate hikes.
Meanwhile, world oil prices rallied more than three percent at one point on more easing of strict Covid containment measures in China which should boost demand, before turning lower as the US dollar pushed higher.
Optimism about the world's second largest economy reopening for business didn't carry over to European and US equity markets, where investors remain concerned that the US economy is continuing to overheat.
Friday's jobs figures showing that the labour market is continuing to create new jobs at a strong pace was joined Monday by data showing that growth in the dominant services sector picked up last month.
That means the Fed still had plenty of work to do to get inflation down to its two-percent target, and upended investors hopes that it might be able to soon stop raising interest rates.
"If incoming data continues to remain favourable, then inflation is likely to persist longer and that may encourage the Fed to be even more reluctant to pause its hiking early in the first half of 2023," said market analyst Fawad Razaqzada at City Index and FOREX.com.
Investors expect the Fed to hike interest rates 0.5 percentage points next week and had been hoping it might wait a bit to evaluate the impact.
The Dow was down 0.8 percent in late morning trading.
In Europe, both Frankfurt and Paris ended the day lower, while London squeaked out a marginal gain as metals and mining firms were boosted by the China news.
- Oil jumps, then slides -
Oil prices jumped as higher demand is expected from China after businesses reopened and testing requirements were relaxed in Beijing and other cities as the country tentatively eases out of a strict zero-Covid policy that sparked nationwide protests.
The entry into force of a price cap on Russian crude agreed by the EU, G7 and Australia came into force and the weekend decision by OPEC and its Russia-led allies to maintain oil output levels also supported prices.
"Uncertainty is coming in waves in energy markets as the choppy tides of supply and demand push up the oil price but keep a lid on big gains," noted Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The $60-per-barrel price cap aims to restrict Russia's revenue while making sure Moscow keeps supplying the global market.
"There are expectations that there will be less crude available to buy as the $60 cap on Russia oil takes effect," Streeter added.
The Kremlin on Monday insisted the cap would not affect Moscow's military campaign in Ukraine.
"From the OPEC+ perspective, it can't be easy to make reliable forecasts against that (Russia) backdrop and the constantly evolving Covid situation in China, which currently looks far more promising from a demand perspective," said Craig Erlam, senior market analyst at OANDA trading group.
The uncertainty was highlighted as crude gave up its gains as the day wore on and then turned lower.
But those gains faded as the dollar rose against its main rivals, making purchases of dollar-denominated oil more expensive for consumers.
- Key figures around 1630 GMT -
New York - Dow: DOWN 0.8 percent at 34,161.25 points
EURO STOXX 50: DOWN 0.5 percent at 3,956.53
London - FTSE 100: UP 0.2 percent at 7,567.54 (close)
Frankfurt - DAX: DOWN 0.6 percent at 14,447.61 (close)
Paris - CAC 40: DOWN 0.7 percent at 6,696.96 (close)
Tokyo - Nikkei 225: UP 0.2 percent at 27,820.40 (close)
Hong Kong - Hang Seng Index: UP 4.5 percent at 19,518.29 (close)
Shanghai - Composite: UP 1.8 percent at 3,211.81 (close)
Euro/dollar: DOWN at $1.0514 from $1.0531 on Friday
Dollar/yen: UP at 136.43 yen from 134.27 yen
Pound/dollar: DOWN at $1.2188 from $1.2296
Euro/pound: UP at 86.24 pence from 85.73 pence
Brent North Sea crude: DOWN 0.7 percent at $85.01 per barrel
West Texas Intermediate: DOWN 0.9 percent at $79.26 per barrel