S&P 500 dragged down by EM fallout Friday 21:15 GMT. Global equities and emerging market currencies ended the week with heavy losses as a simmering undercurrent of risk aversion finally boiled over, largely triggered by mounting concerns about China and heightened by Argentina's peso woes. The growing sense of nervousness in the markets fuelled gains for "havens" such as the yen, gold, and longer-dated US and German government bonds. However, short-dated Treasury bills came under pressure from fresh concerns about the US debt ceiling, traders said. In New York, the S&P 500 equity index dived 2.1 per cent on Friday, leaving it 2.6 per cent lower over the holiday-shortened week - its worst weekly performance since June 2012. Tellingly, the CBOE Vix volatility index, which gauges the cost of US equity portfolio protection and is often called Wall Street's "fear gauge," soared nearly 30 per cent on Friday to its highest since mid-October. In Europe, the FTSE Eurofirst 300 index tumbled 2.4 per cent on Friday - its worst session in seven months - for a weekly slide of 3.2 per cent. In Tokyo, a 1.9 per cent fall for the Nikkei 225 left the indicator at a one-month low and nursing a 2.2 per cent drop over the five-day period. The MSCI emerging markets equity index was down 1.3 per cent on the day, taking its fall since the start of the year to 5.2 per cent. Concerns about China intensified following some disappointing economic releases, which came after a fresh spike in Shanghai money market rates, and amid worries over the potential default of a Chinese Trust Bank product. Meanwhile, expectations that the Federal Reserve would further reduce - or taper - the volume of its monthly asset purchases next week, against the backdrop of a largely uninspiring US quarterly earnings season, added to the sense of nervousness. "After an already difficult start for emerging markets this year, the situation became even more challenging this week as weak Chinese data created fresh concerns of a hard landing with a negative spillover to other EM," said analysts at Danske Bank. The Chinese disappointment added to other headwinds for EM assets, stemming from Fed tapering and high political uncertainty in countries such as Turkey, Thailand and Ukraine. In addition, Argentina allowed the peso to drop 13 per cent, which fuelled speculation that the country is running out of foreign reserves. The "flight to quality" prompted by the turbulence in the EM currency arena bolstered demand for the yen. The dollar was down 0.9 per cent against the Japanese unit on Friday at Y102.28, leaving it down 2 full yen over the course of the week. Gold returned to favour, hitting a two-month high of $1,272 an ounce on Friday before paring its gain to trade $3 higher at $1,267 - a rise of $14 on the week. Among highly rated government bonds, the 10-year US Treasury yield was down another 4 basis points at 2.73 per cent on Friday, taking its decline over the week to 10bp - although the one-month T-bill yield hit its highest since November. The equivalent-maturity German Bund shed 4bp to 1.66 per cent, a near-six month low, and fell 10bp over the week. Michael Hanson, senior US economist at BoA-Merrill Lynch, said that while next week's Fed meeting would be transitional in terms of personnel - it will be the last to be chaired by Ben Bernanke - the central bank's commitment to policy accommodation and a gradual exit from its stimulus programme would remain in place. "Another $10bn taper is likely this meeting, bringing the monthly purchase pace down to $65bn," Mr Hanson said. Forward guidance is also likely to shift to a more qualitative nature as the 6.5 per cent unemployment threshold is dropped, and may be strengthened as inflation remains stubbornly low. Forward guidance was also in focus in the UK as the country's jobless rate fell to within a whisker of 7 per cent, the threshold at which the Bank of England had said it would consider raising interest rates. Mark Carney, the Bank's governor, subsequently signalled that he was set to ditch his policy of linking rates to the level of unemployment. Sterling, which rose sharply amid talk that the data could bring forward the timing of the first UK rate rise, slipped 0.8 per cent on Friday to $1.6498 - but was still up 0.5 per cent over the week. The UK policy outlook stood in marked contrast to that of the eurozone - although expectations in some quarters that the European Central Bank would cut rates at its next meeting were deflated by robust economic data and an easing of money market stress in the region. The euro was down 0.1 per cent against the dollar on Friday at $1.3679 but up 1 per cent over the week.