By Atul Prakash
LONDON (Reuters) - Global equities slipped to a two-week low on Friday as a sell-off on Wall Street led by technology and biotech shares and triggered by growing concerns that valuations are over stretched spread to Asia and Europe.
With stocks out of favor, government bonds were set to benefit, with the yield on the benchmark 10-year U.S. Treasury note falling to its lowest since early March.
However, Greek 10-year government bond yields rose as investors booked profits on a strong rally in the run-up to the country's first debt sale since it defaulted two years ago.
The MSCI All-Country World index of shares fell 0.5 percent by 1024 GMT to its lowest level since late March, the MSCI Europe dropped 1.2 percent, while the STOXX Europe 600 index (.STOXX) was down 1.3 percent.
That followed a 3.1 percent slide in the tech-heavy U.S. Nasdaq index (.IXIC) on Thursday, the biggest drop in two-and-a-half years, and a 2.4 percent decline in Japan's Nikkei Average (.N225) on Friday, the biggest weekly fall since the March 2011 tsunami and nuclear disaster.
"The sell-off in tech stocks in the United States, where gains were quite strong, is affecting other markets because the U.S. is still setting the tone for global markets," said Klaus Wiener, head of tactical asset allocation and chief economist at Generali Investments Europe, which manages $500 billion.
"But I don't think this is the start of a longer correction as the U.S. economy will gain further momentum. With key interest rates pinned to the zero-bound, we are still in a low-yield environment. Investors' hunger for yield will ensure that every time equity markets correct, demand will rise."
What increasingly looks like a major portfolio shift from momentum plays in U.S. technology and biotechnology stocks was having a knock-on effect across all regions and sectors, pressuring even defensive shares.
Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns, prices can fall rapidly as investors rush to the exits.
"The sell-off is the result of increasing concerns about the future earnings growth," Christian Stocker, equity strategist at UniCredit in Munich, said. "Valuations are high compared to previous years and the trend of earnings estimates is very muted in the U.S. and almost flat in Europe."
DOLLAR FLAT, OIL SOFT
Technology stocks led the retreat in Europe, with the sector index (.SX8P), following its U.S. counterpart, down 2.4 percent on growing fears the shares have risen too far, too fast and are now relatively expensive compared with the broader market. The European healthcare index (.SXDP) was down 1.8 percent.