World markets slipped lower on Friday, led by bank stocks after President Barack Obama proposed a sweeping overhaul of Wall Street to avert future financial crises.

Obama said he would seek to limit the size and complexity of large financial institutions so that their collapse wouldn’t imperil the broader financial system and world economy or cost taxpayer money in bailouts.

The announcement spooked investors, causing a sharp sell-off in the U.S. and Asia. Markets recovered some of their poise by the European open, with the British stock index FTSE 100 down 0.1 per cent at 5,331.05 and Germany’s DAX shedding 0.4 percent to 5,721.50. France’s CAC-40 lost 0.3 per cent to 3,850.31.

U.S. futures pointed to a meagre recovery on Wall Street on Friday. Standard & Poor’s 500 futures were up 2.8 points at 1,113.90 and Dow industrials futures were up 25 points at 10,363.00.

Obama’s announcement and Wall Street’s reaction unnerved markets already on edge over China’s recent moves to prevent its economy from overheating amid worries of inflation and asset bubbles.

Bank stocks were hit hardest, with Barclays Plc down 4.5 per cent, Royal Bank of Scotland Plc 3.0 per cent and Deutsche Bank 4.3 per cent lower.

Adding to the uncertainty are questions about whether this year’s economic prospects justify more gains after the run-up in stock prices that began in early 2009, said Mark Matthews, strategist at Macquarie Capital Securities in Hong Kong.

Last year “was such an amazing ride and people are starting to wonder if the recovery that we’re seeing in 2010 was already priced in,” Matthews said.

With little in terms of scheduled economic news, markets will be looking to more earnings reports, particularly from McDonald’s, General Electric and Kimberly-Clark.

In Europe, attention remained focused on the debt problems of Greece, with officials stressing the country will not need a bailout but will manage its funding on the market. The possibility that other countries, such as Portugal, could also have trouble handling their debt has kept markets on edge, pushing the euro to 5-month lows against the dollar.

The euro recovered somewhat on Friday, to $1.4158 from $1.4082 late Thursday. The dollar weakened to 90.32 yen from 90.49 yen.

In the U.K., official’s statistics confirmed that British consumers splurged on food and drink during the holidays, with retail sales rising 3.6 percent in December. The rise, however, was not a strong as some analysts expected, suggesting recovery from recession will be gradual.

In Asia earlier, Japan led the drop, with the Nikkei 225 stock average diving 2.6 percent to 10,590.55. Hong Kong’s Hang Seng dropped 0.7 percent to 20,726.18 and Korea’s main market index lost 2.2 per cent to 1,684.35.

Elsewhere, China’s Shanghai benchmark fell 1 percent, India’s Sensex shed 1 percent and Australian stocks retreated 1.6 percent.

While banks in the U.S. fell steeply, shares in Asian financial institutions performed better, with many closing the session higher. Japanese lender Mitsubishi UFJ edged up 0.2 percent and China’s ICBC gained 2.3 percent in Hong Kong. Other industries like commodities suffered big drops as concerns about future global demand prompted investors to scale back their riskier bets.

In the U.S. Thursday, Wall Street was yanked lower by heavy selling in bank stocks.

The Dow fell 213.27, or 2 per cent, to 10,389.88, its biggest point and percentage drop since Oct. 30.

The broader Standard & Poor’s 500 index fell 21.56, or 1.9 percent, to 1,116.48. The Nasdaq composite index fell 25.55, or 1.1 per cent, to 2,265.70.

Oil prices rose after early losses, with benchmark crude for March delivery up 27 cents at $76.35 a barrel. The contract dropped $1.66 to settle at $76.08 overnight.