LONDON - World stocks were close to a two-year low and Japan unilaterally intervened in FX markets for the first time since 1998 on Thursday as the Federal Reserve's aggressive US rate hike signals had put markets on the run.

It was painful start in Europe where along with the economic strains, fears of a nuclear conflict with Russia are now reverberating.

The euro was trying to lift itself off a 20-year low, the Bank of Japan' landmark intervention had come after the yen had hit a 24-year trough and sterling was near a 1985 low ahead of a Bank of England meeting later. /FRX

"We have taken decisive action (in the exchange market)," Japan's vice-finance minister for international affairs Masato Kanda told reporters, speaking about its intervention. 

The move had come just hours after the BOJ had maintained super-low interest rates, fighting the global tide of monetary tightening by the US Federal Reserve and others who are trying to rein in inflation.

Europe's major stocks markets tumbled over 1 percent before they found support. Asian stocks had swooned to a two-year low overnight after Fed's rate hike and GDP forecast cuts had triggered a brutal finish on Wall Street.

"Fed is delivering exactly what it said it would (with rate hikes) but the markets have pushed out the path of interest rates quite a lot," Close Brothers Asset Management Chief Investment Officer Robert Alster said.

"All of a sudden we are entering a scenario where everything gets a lot more drawn out... It is a bit disconcerting in some respects but at least they have laid out the road map and the economy is second to monetary policy.

In the rates market, short-term yields remain on the rise and the peak for the benchmark Fed funds rate a moving target.

The median of Fed officials' own outlook has US rates at 4.4 percent by year's end — 100 bps higher than their June projection — and even higher, at 4.6 percent, by the end of 2023.

Futures have scrambled to catch up. The yield on two-year Treasuries hit a 15-year high of 4.13 percent in Asia before dipping to 4.10 percent in Europe.

Ten-year yields are below that, at 3.55 percent as traders price in the hikes' damage to longer-run growth. In Europe, Germany's rate sensitive two-year bond yield rose 10 basis points (bps) to 1.859 percent - its highest since May 2011.

"No one knows whether this process will lead to a recession or if so how significant that recession would be," Fed Chair Jerome Powell told reporters after the rate hike announcement.

"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer."

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The Swiss National Bank also pulled up its rates by a chunky 0.75 percentage point - only the second increase in 15 years which also ended its spell in negative interest rates.

Previously Swiss rates had been frozen at minus 0.75 percent for years as the SNB tried to tame the appreciation of the Swiss franc but Thursday's message was that more might needed in the current inflationary environment.

"To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary," it added, sending the franc up over 1 percent.

The global outlook is helping drive the dollar higher as US yields look attractive and investors think other economies look too fragile to sustain rates as high as those contemplated in the US.

Yields in Japan's government bond market also retreated as speculators closed some bets on imminent policy changes.

Back in Europe, Norway raises its rates by 50 bps and the Bank of England was up next with traders seeing an 80 percent chance of a 75 bp hike there too.

Not that that is much salve for the region's currencies. The pound had hit a 37-year low of US$1.1213 overnight and Sweden's crown was still at a record low despite the country's steepest rate hike in a generation this week.

The dollar's rise has sent emerging market currencies tumbling and punished cryptocurrencies and commodities. Spot gold was down 0.7 percent on Thursday and near a two-year low at US$1,661 an ounce. Bitcoin was just below US$19,000.

Brent crude steadied at US$90.33 a barrel after sliding on demand worries.

The Australian and New Zealand dollars were pinned near their lowest since mid-2020, with the Aussie down 0.4 percent on Thursday at US$0.6622 and the kiwi down 0.4 percent as well at US$0.5882.

"The Fed is not going to stop any time soon," said Sally Auld, chief investment officer at wealth manager JB Were in Sydney. "What else do you buy except for the US dollar at the moment?"