The mood in financial markets remained subdued Friday after a surprisingly big fall in Japanese consumer prices and lower than expected first-quarter U.S. economic growth.

The news that the U.S. economy grew by only 2.5 percent on an annualized basis during the first three months of the year was a disappointment as the consensus in the markets was for a rise of around 3 percent compared with the previous quarter's 0.4 percent.

After a run of disappointing U.S. economic news, the smaller than expected increase is likely to fuel concerns about the state of the world's largest economy. However, the fact that consumption held up and the fall was largely due to weaker government spending tempered the disappointment.

“We have observed some positives that suggest growth will pick up in the back half of the year but the U.S. economy still struggles to accelerate in a sustainable fashion,” said Dan Greenhaus, managing director of chief global strategist at BTIG.

Markets remained lower and looked headed for a retreat at the end of what's been a largely positive week.

In Europe, the FTSE 100 index of leading British shares was down 0.6 percent to 6,404 while Germany's DAX fell 0.5 percent to 7,792. The CAC-40 in France was 1 percent lower at 3,803.

Wall Street was also poised for a lower opening with both Dow futures and the broader S&P 500 futures down 0.3 percent.

The dollar was largely unaffected by the U.S. GDP figures and the euro was 0.2 percent higher at $1.3028.

Friday's session had already been dented by the news that prices in Japan are falling at their fastest rate in two years. Deflation is considered a bad thing as it can weigh on economic activity by giving consumers the incentive to hold off make purchases and by keeping a lid on wages. It also raises the relative value of a country's debt and for a country like Japan that's another problem.

The news that consumer prices in Japan fell by 0.9 percent in the year to March highlighted the scale of the challenge facing the Bank of Japan, which has been tasked to get inflation up to 2 percent. In its attempt to do so, it announced a massive monetary stimulus package this month. It did not announce any new measures after its latest meeting Friday. 

The prospect of more money in Japan has hit the yen hard to the likely benefit of the country's powerhouse exporters. And that's one reason why Tokyo's Nikkei 225 stock index has performed so strongly over the past few weeks.

However, the fall in prices weighed on Japanese stocks and gave the Asian trading session a soft tone. The Nikkei, which in the morning hit its highest intraday level in five years at 13,983.87, fell 0.3 percent to close at 13,884.13. The yen, however, clawed back some ground after the BoJ announcement of unchanged policies. The dollar was 1.2 percent lower at 98.20 yen.

“I think if there is anything to take from today's BoJ policy meeting it is the fact that the BoJ believes it has made all the announcements necessary in order to achieve its more aggressive inflation target,” said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ. 

Elsewhere in Asia, Hong Kong's Hang Seng rose 0.7 percent to 22,547.71 while South Korea's Kospi fell 0.4 percent at 1,944.56. Benchmarks in mainland China and India fell.

Oil prices tracked equities lower with the benchmark New York rate down 49 cents at $93.15 a barrel. Oil prices, like other commodities, have generally rebounded this week so some form of profit-taking was always likely. (AP)