World stock markets slumped on Monday on worries that resurgent United States inflation would reduce the chances of further US interest rate cuts to shield the economy from a credit crunch, dealers said.
European and Asian shares sank into the red with losses of up to 3,5% as investors took their cue from Wall Street’s sell-off on Friday in the wake of unexpectedly strong inflation figures.
Investors took fright following news that US consumer prices jumped 0,8% in November. On a 12-month basis, inflation hit 4,3%, the fastest since June 2006.
”Higher inflation in the US will reduce the scope for more interest rate cuts. That’s why investors are not so happy,” said Francis Lun, general manager at Fulbright Securities.
In morning trade, London’s FTSE 100 index of leading shares dropped 1,44% to 6 305,10 points, Frankfurt’s DAX 30 slid 1,20% to 7 852,39 points and in Paris the CAC 40 shed 1,88% to 5 500,72.
Earlier in Asia, Tokyo closed down 1,7%, Hong Kong slumped 3,51%, Seoul shed 2,9% and Shanghai gave up 2,6%.
Sydney and Taipei both lost 3,5%.
”Asian markets succumbed to the selling spree triggered by Wall Street’s tepid performance,” said Kim Min-Sung, analyst at Bookook Securities.
”The market fluctuated sharply as sentiment turned really fragile.”
New York’s Dow Jones index tumbled 1,32% on Friday in a volatile session as the price data raised fears of ”stagflation” — a combination of slower growth and stubborn inflation pressures.
Analysts said the Fed, like many central banks, now faced the dilemma of whether to keep rates high to fight inflation or reduce lending costs so as to help ease a global credit crunch.
Last week the US central bank trimmed its short-term borrowing rate by 25 basis points to 4,25% in an effort to shore up economic activity but now markets are unsure whether to expect a further easing of monetary policy.
Investors are also awaiting the release of fourth-quarter earning reports later this week by US investment banks Goldman Sachs, Morgan Stanley and Bear Stearns amid fears of further subprime home loan-related losses.
They were also watching the first of a $20-billion loan auction by the Fed to help commercial banks access cash — part of an initiative unveiled last week by the Fed and other central banks to ease the global credit squeeze. – Sapa-AFP