[LONDON] Stock markets tumbled on Tuesday as traders tracked a strengthening dollar, high oil prices, political impasse in Germany and US debt concerns.

Brent crude oil briefly jumped above US$80 per barrel for the first time in almost three years on expectations for surging demand and concerns about tight supplies as the world slowly emerges from the pandemic crisis.

Wall Street drifted lower, with tech shares hit hard as Treasury Secretary Janet Yellen urged Congress to quickly raise the debt ceiling to keep the US government operating.

"A combination of fears that China is cooling, and rising government yields have prompted traders to sell stocks," said David Madden, market analyst at Equiti Capital, as the Dow Jones index lost two per cent mid-session and the tech-heavy Nasdaq shed 2.5 per cent.

"The prospect of higher energy prices, fuelling inflation, and rises in bond yields that appear to be pre-empting tighter monetary policy by central banks, have prompted widespread selling across global stock markets," said Chris Beauchamp, analyst at IG.

There were "few safe havens," he said.

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Analysts attributed disproportionate declines in tech stocks to rising treasury yields, as higher interest rates generally hit tech companies because of their greater reliance on debt to fund growth.

"Technology stocks came under heavy selling pressure early Tuesday as investors looked at a combination of uncertainty on Capitol Hill, coupled with all but certainty that borrowing costs will increase," said JJ Kinahan, chief market strategist at TD Ameritrade.

Republicans in Washington have blocked a Democratic move to raise the US borrowing limit, meaning the government could run out of cash October 18.

That could cause a debt default that most observers say would spark a massive financial crisis, but Republicans say they will refuse to pay for Democrats' spending plans.

The brewing crisis comes as Democrats fight to pass US President Joe Biden's multi-trillion-dollar infrastructure and social spending bills, with party infighting fuelling concerns that the president's agenda could end up stillborn.

Germany, Europe's biggest economy, was in focus as it headed for weeks, if not months, of protracted coalition haggling following weekend elections.

Both the German DAX and French CAC indexes were down by about two per cent, while London was off 0.5 per cent.

Chancellor Angela Merkel's conservatives have insisted on trying to form a government even after losing to the Social Democrats in a tight race.

ENERGY CRUNCH

In Britain, army tanker drivers were put on standby to deliver petrol as the country battles a fuel crisis.

The British pound dipped more than one per cent against the dollar to US$1.3531, the lowest level since January.

Bank of England governor Andrew Bailey hinted on Monday that the central bank would refrain from aggressive monetary policy tightening despite elevated inflation.

"The pound took a pounding after governor Bailey implied that the BoE will not aggressively tighten its belt, as the UK is facing stagflation risks," ThinkMarkets analyst Fawad Razaqzada told AFP.

China was also facing an energy crunch, with Goldman Sachs lowering its annual growth forecast for the world's second-biggest economy.

China has also been in the spotlight over concerns about the possible collapse of troubled Chinese developer Evergrande.

AFP