Asian stocks sold off and European markets were steady on Friday as investors worried about the prospects for China technology stocks and progress in political negotiations over the US debt ceiling.

Hong Kong’s Hang Seng index posted its largest daily drop since late February, falling 1.8 per cent with all sectors in negative territory. The Hang Seng tech index fell 3.1 per cent, with shares in Alibaba down 4.1 per cent. Chip stocks also tumbled, with Taiwan Semiconductor down 5.5 per cent.

China’s CSI 300 lost 2 per cent, extending a decline that has taken hold even after the release of much stronger than expected Chinese growth figures on Tuesday.

“Today’s sell-off is related to the concerns that the US administration will intensify restrictions on Chinese tech and AI, with both sectors performing particularly poorly”, said Mitul Kotecha, head of emerging markets strategy at TD Securities.

In Europe, the region-wide Stoxx 600 traded between gains and losses after eurozone business activity expanded faster than expected in April. Germany’s Dax lost 0.4 per cent.

Investors are also on the lookout for signs of easing demand, lower orders and pressure on companies’ margins, as fears of a recession have risen since the collapse of three midsized banks in the US last month. Procter & Gamble is later in the day forecast to report a decline in revenue and profit as consumer demand weakens.

In the US, contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 traded between gains and losses ahead of the New York open. Investors are growing increasingly nervous about the still-remote possibility that the US will default on its debt obligations later this year.

“The Democrats and Republicans seem far apart and investors suspect we will need to see a lot more market stress before adults enter the room”, said Chris Turner, global head of markets at ING, noting that the price to insure US government debt against the risk of default this week hit a fresh cycle high.

He added that weaker tax receipts could bring forward the dates when parts of the US government could begin to shut down.

Concerns over growth mean the Federal Reserve is widely tipped to raise rates for the last time by a quarter percentage point when it next meets in early May, though investors are split on when the central bank might begin to cut borrowing costs. US inflation eased last month to its lowest level in nearly two years. On Thursday, Cleveland Federal Reserve president Loretta Mester said she expected further tightening of US monetary policy.

Also on Thursday the head of Blackstone, the world’s largest alternative asset manager, said the Fed “is likely to pause or maybe go 25 basis points higher from here, but I think they’re unlikely to pivot as quickly as the market is expecting”.

Daleep Singh, chief global economist at PGIM, said March’s rate rise to an upper bound of 5 per cent “likely marked the end of the Fed’s tightening cycle”, and that a credit crunch precipitated by the banking crisis could force the Fed to make “50 basis points to 75 basis points of rate cuts” in the final three months of the year.