While geopolitical tensions are the key focus for markets, traders eyed the US central bank's latest meeting Wednesday as officials discussed monetary policy in light of the president's tariff blitz.
The Fed kept borrowing rates on hold, as expected, and said in a statement that "uncertainty about the economic outlook has diminished but remains elevated".
It also cut its economic growth forecast for this year and raised inflation and unemployment expectations, in its first updated projections since Trump unveiled his levies on most trading partners at the start of April.
Boss Jerome Powell called the economy "still solid" but added that "increases in tariffs this year are likely to push up prices and weigh on economic activity".
He said the bank was "well-positioned to wait to learn more" before considering changes to rates. Still, the Fed's so-called dot-plot chart predicted two cuts this year.
"Ultimately, the cost of the tariff has to be paid and some of it will fall on the end consumer," he added. "We know that's coming and we just want to see a little bit of that before we make judgements prematurely."
The Fed's decision drew the ire of Trump, who has repeatedly pressured the independent central bank for rate cuts. He wrote on his Truth Social platform that Powell was "the WORST" and a "real dummy, who's costing America $Billions!".
Hours before the meeting, he had told reporters "We have a stupid person, frankly, at the Fed."
"We have no inflation, we have only success, and I'd like to see interest rates get down," he said at the White House. "Maybe I should go to the Fed. Am I allowed to appoint myself?"
- 'A heavy price' -
Tai Hui at JP Morgan Asset Management said: "The Fed's assessment indicates that the economy is in good shape, aligning with current economic data.
"However, trade policy, fiscal policy, and unintended consequences of policies from the Trump administration are contributing to market volatility in the second half of this year."
Hong Kong led share losses, falling two percent, while Tokyo shed one percent, with Bangkok also well down as a political crisis involving Thailand's Prime Minister Paetongtarn Shinawatra put her government on the brink of collapse.
Shanghai, Sydney, Singapore, Wellington, Taipei, Mumbai and Jakarta were also down with London, Paris and Frankfurt.
The Fed comments compounded the already weak sentiment as Trump considers joining Israeli strikes against Iran.
He indicated he was still looking into such a move and that Iran had reached out seeking negotiations, saying: "I may do it, I may not do it. I mean, nobody knows what I'm going to do."
Without providing more details, he added: "The next week is going to be very big."
Iran's supreme leader Ayatollah Ali Khamenei earlier sounded a defiant note, rejecting Trump's call for "unconditional surrender".
Crude prices rose Wednesday after fluctuating through the Asian day as traders tracked developments.
Israel's army said Thursday it had struck an "inactive nuclear reactor" in Iran overnight, while the Islamic republic's Natanz nuclear site was targeted again.
Meanwhile, Prime Minister Benjamin Netanyahu said Tehran would "pay a heavy price" after a missile hit a hospital in Israel's south.
Analysts said the main worry for traders was the possibility Tehran will shut a key shipping lane through which an estimated fifth of global oil supply flows.
"We don't see it as a likely scenario at this time, but given the precarious state that the Iran regime is in right now, I think everybody should be watching" the Strait of Hormuz, Mike Sommers, president of the American Petroleum Institute, told Bloomberg television in an interview.
- Key figures at around 0810 GMT -
Tokyo - Nikkei 225: DOWN 1.0 percent at 38,488.34 (close)
Hong Kong - Hang Seng Index: DOWN 2.0 percent at 23,237.74 (close)
Shanghai - Composite: DOWN 0.8 percent at 3,362.11 (close)
London - FTSE 100: DOWN 0.5 percent at 8,801.86
West Texas Intermediate: UP 1.2 percent at $76.01 per barrel
Brent North Sea Crude: UP 1.0 percent at $77.44 per barrel
Euro/dollar: DOWN at $1.1467 from $1.1485 on Wednesday
Pound/dollar: DOWN at $1.3410 from $1.3420
Dollar/yen: UP at 145.30 yen from 145.09 yen
Euro/pound: DOWN at 85.50 pence from 85.55 pence
New York - Dow: DOWN 0.1 percent at 42,171.66 (close)
dan/jfx
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