Indian stock markets are expected to be volatile in the special trading session on Saturday when finance minister Nirmala Sitharaman will present the budget proposals for financial year 2021. The Union budget faces a challenging macro backdrop with economic growth at decadal lows, inflation breaching the upper threshold of the targeting band, and business and consumer sentiment appearing extremely subdued.

Besides concerns over fiscal slippages, market investors expect stimulus packages from the government to revive the sagging economy and a slew of changes in taxation including long-term capital gains tax (LTCG) and personal tax. Key growth drivers of urban consumption, rural consumption, investment spending, and export performance continued to remain subdued in early part of December quarter, and markets await a government boost. In this context, any unfavorable announcement by the government may see the stock markets react negatively.

Worries about how the fast spreading coronavirus outbreak will impact growth in the US and elsewhere has hit stocks and pushed investors into haven assets. Many worry that a potentially sizeable drop in Chinese markets -- due to open Monday after being shut since 23 January --will weigh on stocks around the globe.

Gold is headed to its best month in five, while yields on US and euro zone government debt fell to three-month lows as the US, Japan and other countries tightened travel curbs to China, where the death toll from the virus rose to 213.

Crude prices fell, with Brent poised for its biggest monthly decline since November 2018, as supply chains disruptions and travel curbs look to crimp Chinese growth, leading economists to temper their outlook for the world's second-largest economy.

Equity markets tumbled more than 1% as disappointing US and European data pointed to economic weakness and a mixed batch of corporate earnings added to the gloom.

Yields on the benchmark 10-year US Treasury note slid to a low of 1.508%.

MSCI's gauge of stocks across the globe shed 1.21%, while emerging market stocks lost 1.17%.

In Europe, the pan-European STOXX 600 index closed down 1.07%. Losses for the week were 3%, its worst in almost six months, while the 1.2% monthly loss was the worst January since 2016.

On Wall Street, the Dow Jones Industrial Average fell 590.48 points, or 2.05%, to 28,268.96. The S&P 500 lost 56.66 points, or 1.73%, to 3,227 and the Nasdaq Composite dropped 137.24 points, or 1.48%, to 9,161.70.

Sterling extended gains after jumping on Thursday when the Bank of England confounded market expectations by not cutting interest rate cut. Sterling traded at $1.3199, up 0.80% on the day. The yen strengthened 0.52% versus the greenback at 108.41 per dollar.

The dollar index fell 0.47%, with the euro up 0.53% to $1.1088.

The Australian dollar fell to a four-month low against the US dollar, while China's offshore yuan struggled to find a footing in the wake of the virus outbreak.

(Reuters contributed to the story)

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