Markets Sink as Rate Hike Fears Trump Recovery Optimism

Asian and European stocks fell on Friday as the euphoria from the US Federal Reserve's upbeat economic outlook was eclipsed by fears the recovery will fan inflation and interest rate hikes sooner than anticipated.

Mind-boggling amounts of central bank and government stimulus have helped the global economy recover from last year's virus-driven collapse.

Top global central banks are now grappling with a recent rapid rise in bond yields, triggered by fears that stimulus-fuelled inflation could herald rate hikes as economies reopen.

Heading into the weekend, the Frankfurt, London and Paris stock markets fell, reversing the previous day's gains.

Oil rose but held below this week's peaks while the dollar was mixed.

"Stock markets in Europe have taken their cues from the large declines seen in the United States last night," said CMC Markets analyst David Madden.

"The bearish moves on Wall Street were sparked by higher bond yields and that has spilled over to the European session today, even though things have cooled a little on the yields front."

After dipping Wednesday, yields hit a 14-month high on Thursday, sparking a plunge in US markets with the Nasdaq down more than three percent. 

The losses carried through to Asia where Hong Kong, Shanghai, Tokyo and Taipei shed more than one percent.

The Fed on Wednesday sought to placate the pessimists by once again promising it will not touch interest rates until it is satisfied unemployment has been controlled and inflation is running hot for an extended period.

Fed boss Jerome Powell and Treasury Secretary Janet Yellen have repeatedly said the expected lift in inflation this year would be short-term and that rising Treasury yields -- a guide to future interest rates -- was a sign of confidence in the economy.

In Asia, Tokyo's Nikkei was also dealt a blow after the Bank of Japan said it would stop buying exchange-traded funds linked to the index as part of its economic support programme.

- Europe's new lockdowns -

In Europe, investors remain concerned that the region's recovery could be knocked off course as a rise in new virus cases forces some governments to reimpose containment measures.

French Prime Minister Jean Castex on Thursday said Paris and several other regions would go into limited lockdown after the country saw its highest daily caseload in nearly four months.

Bulgaria and Ukraine were also due to unveil tougher restrictions, while the World Health Organization issued a warning on rising infections in Central Europe and the Balkans.

- Key figures around 1130 GMT -

London - FTSE 100: DOWN 0.7 percent at 6,730.36 points

Frankfurt - DAX 30: DOWN 0.5 percent at 14,697.77

Paris - CAC 40: DOWN 0.5 percent at 6,030.34

EURO STOXX 50: DOWN 0.5 percent at 3,849.47

Tokyo - Nikkei 225: DOWN 1.4 percent at 29,792.05 (close)

Hong Kong - Hang Seng: DOWN 1.4 percent at 28,990.94 (close)

Shanghai - Composite: DOWN 1.7 percent at 3,404.66 (close)

New York - Nasdaq: DOWN 3.0 percent at 13,116.17 (close) 

New York - Dow: DOWN 0.5 percent at 32,862.17 (close Thursday)

Euro/dollar: DOWN at $1.1898 from $1.1915 at 2200 GMT

Pound/dollar: UP at $1.3934 from $1.3925

Euro/pound: DOWN at 85.38 pence from 85.57 pence

Dollar/yen: DOWN at 108.84 yen from 108.89 yen

Brent North Sea crude: UP 0.4 percent at $63.53 per barrel

West Texas Intermediate: UP 0.5 percent at $60.32 per barrel