The red ink started flowing again here yesterday after a night of turmoil on Wall Street on Thursday that has raised the spectre of significant falls ahead.

Local investors awoke to find United States markets had officially sunk into correction territory overnight on Thursday, with the Dow Jones and S&P 500 more than 10 per cent down from their peaks.

That meant the Straits Times Index (STI) had only one way to go yesterday, although the day was not as brutal as many feared, with shares ending the day 38.66 points, or 1.13 per cent, down at 3,377.24.

A better sign of the bloodshed came with the scorecard, which showed that losers swamped gainers 448 to 85.

The STI closed a week of dramatics 152.13 points, or 4.3 per cent, lower.

The tremors here also took their cue from a deepening sell-off in China, worsened by tighter credit rules and the speculative nature of the market. Hong Kong's Hang Seng lost 3.1 per cent, while the Shanghai Composite slumped 4.05 per cent.

Investors here were cheered slightly late yesterday by news that Dow futures flashed signs of a positive reversal late last night while bottom-fishers scooped up quality blue chips. IG Asia market strategist Pan Jingyi told The Straits Times: "The longer-term view has not changed for me. The shock with respect to the US session was priced in at the start, but US futures are showing upside right now."

But punters remained spooked by inflationary fears and the return of volatility to the late-stage bull market. Although a mood of relative calm still dominates, market observers warned that volatility would define the coming weeks as inflationary pressure, which could force central banks to raise interest rates and bring the economic boom to a premature end, remains topmost on everyone's minds.

Central banks signalled on Thursday that they would not shirk from their missions to normalise interest rates. New York Fed President William Dudley called the US market drop "small potatoes", while the Bank of England hinted at earlier and larger rate hikes.

Mr Kelvin Tay, regional chief investment officer at UBS Wealth Management, said: "The market will likely remain nervous over inflationary pressure until we get reassurance from US core inflation and non-farm payroll numbers in early March."

The bailout yesterday was not entirely surprising as some amount of forced selling on behalf of those who did not top up their accounts after margin calls was to be expected.

And this earnings season still pro-mises to be a strong one.

So, even as local real estate investment trusts and growth stocks got battered, buyers came back in to lift some counters off their intra-day lows. DBS Group bounced 3 per cent from its intra-day low to close flat at $26.71 after promising to raise dividends to $1.20 a share from this year.

Meanwhile, investors who have grown used to a one-directional market are being reminded by money managers that price swings are a regular feature of financial markets. Mr Luca Paolini, chief strategist at Pictet Asset Management in Hong Kong, urged investors not to get sidetracked by the resurgence of volatility.

"While I think the bull market now has limited upside, the indications are that we are not (yet) close to a major market peak. A significant widening of credit spreads and a decline in lead indicators is required to call the end of this and any bull market," he wrote.

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