European stocks mostly sagged Friday as traders eyed the outlook for both US interest rates and the global coronavirus crisis, but the yen briefly spiked after Japan's prime minister said he was stepping down for health reasons.

File photo: Agencies

Federal Reserve boss Jerome Powell indicated Thursday that US interest rates will stay ultra low for as long as needed, as the nation seeks to recover from the devastating Covid-19 pandemic.

Nearing the half-way stage, Frankfurt and Paris stocks lapsed back into negative territory, while London flatlined.

While the cash tap that has helped fuel a surge in global equities will remain turned on, investors continue to be rattled by news of further coronavirus infection spikes around the world, particularly in Europe.

France, Germany and Spain have imposed fresh control measures as coronavirus cases surge following the easing of lockdowns.

"It looks like the Fed news wasn't... appetising for European investors, who (are) showing signs of distress regarding rising Covid-19 cases... and the possibility of seeing stricter government measures again," Swissquote Bank senior analyst Ipek Ozkardeskaya told AFP.

Powell said the Fed would be in no rush to reel in inflation, even if it overshoots the central bank's two percent target, instead opting for an average that takes into account periods of weak price rises.

The Fed chief added that policymakers would stick with the new framework "for some time", indicating that the era of cheap borrowing is here for the foreseeable future.

"One could argue that the Fed following this path was already expected by the market, hence why stocks have not surged ahead," said AJ Bell investment director Russ Mould.

Yet the news weighed on the dollar, sending the pound to its highest level since December 2019.

Abe heads for exit

The yen -- regarded as a safe bet in times of turmoil -- also spiked by more than one percent versus the dollar as Japanese Prime Minister Shinzo Abe announced he would resign.

Tokyo's Nikkei 225 ended down 1.4 percent ahead of the official confirmation, which ends a record-breaking tenure at the helm of the world's third-largest economy.

Abe said he is suffering a recurrence of the ulcerative colitis that forced him to cut short a first term in office, and that he no longer felt able to continue.

Analysts said there would be concerns about the end of his big-spending, easy money policy -- dubbed Abenomics -- that has been credited with supporting the fragile economy for years.

"His premiership is known for his aggressive stimulus programme -– which was a big factor behind the major rally in Japanese stocks," noted CMC Markets analyst David Madden.

"From November 2012 -- one month before Abe took the top job for a second time around -- until now, the Nikkei 225 is up over 150 percent, while the in the same time frame the FTSE 100 and the DAX 30 are up roughly 5.0 percent and 40 percent respectively.

"Dealers are a little worried about the change in leadership in Japan, as the next leader might not be as open to excessive easing policies."

There is also a need for stability, with investors needing assurances as the government struggles to guide Japan through the virus crisis and a deep recession.