U.S. stock futures and Asian shares outside China slumped on Monday as investors weighed the implications of Chinese startup DeepSeek's launch of a free, open-source artificial intelligence model to rival OpenAI's ChatGPT.
Meanwhile, the dollar rose after U.S. President Donald Trump slapped Colombia with retaliatory levies and sanctions for turning away military aircraft carrying deported migrants.
U.S. Nasdaq Composite futures tumbled 1.8% as of 0158 GMT and S&P 500 futures sank 0.9%.
Japan's Nikkei (.N225) dropped 0.3%, reversing an initial advance. New Zealand's equity benchmark (.NZ50) slipped 0.6% and Singapore's Straits Times index (.STI) lost 0.2%.
At the same time, Hong Kong's Hang Seng (.HSI) rallied 0.9% and mainland blue chips (.CSI300) added 0.2%, even after data showed a surprise contraction in manufacturing this month.
DeepSeek "has raised the spectre of disruption in the tech landscape, with its emergence suggesting that China can continue to make strides in the AI race despite US restrictions," Yeap Jun Rong, a strategist at IG, wrote in a note.
It "seems to instil some concerns over U.S. tech dominance", putting "tech companies' lofty valuation back under scrutiny", he said.
In currencies, the dollar jumped 0.3% against the Chinese yuan in offshore trading , and rallied 0.4% versus the Aussie and 0.5% versus the New Zealand dollar , with the antipodean currencies tending to act as more liquid proxies for China's currency due to close trade ties.
The Mexican peso slumped 1% and the Canadian dollar eased 0.3%. The Colombian peso had yet to trade against the dollar, but had rallied 3.4% over the previous three sessions.
DOLLAR STRENGTH FLEETING
China, Mexico and Canada face a nervy wait with Trump last week earmarking Feb. 1 for additional tariffs on the United States' top trading partners.
However, Nomura strategist Naka Matsuzawa expects dollar strength on tariff worries to be fleeting.
"As a trend, Trump is taking a more realistic, less aggressive stance on tariffs," Matsuzawa said.
"Bottom line: Trump doesn't want big tariffs because he's worried about inflation," he said. "The dollar will be overall weaker."
Trump last week soothed market concerns by saying he wanted to avoid tariffs on China, and said he could reach a trade deal.
The volatility across asset classes kicks off a crucial week for markets that will see the Federal Reserve and European Central Bank - among others - set monetary policy.
At the same time, many bourses have extended holidays this week for the lunar new year. Among them, South Korea is closed Monday and Tuesday, while Taiwan is shut all week. Mainland China is away from Tuesday until Wednesday of next week. Australia is closed on Monday for Australia Day.
Meanwhile, crude oil prices slumped after Trump on Friday reiterated his call for OPEC to cut oil prices.
Brent crude futures dropped 1.2% to $77.60 a barrel, while U.S. West Texas Intermediate crude lost 1.2% to $73.78 a barrel.
Gold sank 0.6% to $2,755.85 per ounce.
Leading cryptocurrency bitcoin slid 3.5% to $101,415.12.
(This story has been corrected to say that the US dollar-Colombian peso pair had yet to trade on Monday, not rose 1.2%, in paragraph 9)
