HONG KONG: Asian markets sank Monday following big losses on Wall Street as inflation worries and the spreading Delta virus variant fuel worries about the global recovery, while oil prices also sank after top producers reached a deal to hike output.

Hong Kong was the worst hit after the United States warned businesses about the "growing risks" of operating in the city as China tightens its grip, raising concerns about its future as a financial hub.

With vaccines being rolled out around the world and some governments easing lockdowns, equities enjoyed a healthy first half of the year, with many hitting records or multi-year highs as traders bet on a strong rebound from last year's pandemic-induced collapse.

But the frightening spread of the highly transmissible Delta variant has thrown a spanner in the works as leaders in several countries -- particularly those with slow inoculation programmes -- reimpose lockdowns and other containment measures.

Even in parts of the world where most people have been jabbed and reopenings continue, such as England, there is a growing concern about a surge in new cases.

That has raised worries that the expected recovery will not be as strong as first hoped.

Meanwhile, a surge in inflation has rekindled speculation that the Federal Reserve and other central banks could be forced to wind down their ultra-loose monetary policies and raise interest rates sooner than expected.

Treasury Secretary Janet Yellen last Thursday warned prices rises will continue to be strong for the next few months but that they would eventually slow down.

"Markets are... dealing with a burst of inflation pressure that hasn't been observed for quite some time," said Michael Hood, at JP Morgan Asset Management.

US stocks advance, Europe marks time

He said there was "uncertainty about whether it will be temporary or lasting, and a Federal Reserve that is viewing all this through the lens of an untested and somewhat vague new framework, which they've not been able to communicate very clearly about".

Oil drops after output deal

"There's also plenty of ambiguity about the fiscal policy outlook," he wrote in a note, adding: "Finally, there's the Delta variant, which is forcing investors to re-focus on the virus at a time when most had been happy to leave that issue behind.

"Needless to say, all this is happening at a time when valuations - across equities, bonds, and credit - are pretty elevated."

After all three main indexes on Wall Street fell into the red last week, Asia followed suit.

Hong Kong shed more than two percent, with traders also weighing a US advisory on doing businesses there in light of China's clampdown.

The much-anticipated report acknowledged the former British colony "retains many economic distinctions" from the mainland, including stronger protections of intellectual property but raised concerns about the fragile working environment following the introduction of a national security law last year.

Tokyo, Singapore, Seoul and Manila all lost more than one percent, while there were also big losses in Shanghai, Sydney, Taipei, Jakarta and Wellington.

Energy firms were among those suffering selling pressure after OPEC and other major producers finally reached a deal Sunday to pump more oil, bringing an end to a standoff.

The OPEC+ meeting agreed to produce an extra 400,000 barrels per day a month from August to meet rising demand and temper price rises, which would help keep the global recovery on track.

Negotiations on easing production cuts became deadlocked earlier in July owing to a row between the world's largest oil exporter Saudi Arabia and neighbour the United Arab Emirates.

Prices had been sitting around three-year highs as traders fretted that supplies would not be enough to meet improving demand.

But Daniel Hynes, of Australia & New Zealand Banking Group, said: "The deal reached over the weekend is likely to lead to some further weakness in the short term, as investors unwind positions on the prospects of higher supply."

However, he said the market was still relatively tight, meaning the drop in prices would likely be short-lived.