Volkswacht Bodensee - Stock markets down as traders weigh inflation, rate hikes

Shares in US lender PacWest plunged almost 29 percent after it indicated a fall in deposits, rekindling fears over the stability of the banking sector.

Traders also assessed data showing US wholesale prices rose modestly in April, giving the Federal Reserve another point of reference as it weighs the prospect of another rate hike next month.

In Britain, the Bank of England lifted its interest rate by a quarter point to 4.5 percent, the highest level since the 2008 financial crisis as inflation there remains above 10 percent.

"The Bank of England is clearly concerned about the stickiness of UK inflation," said Shanti Kelemen, chief investment officer at M&G Wealth.

"Higher interest rates will eventually reduce demand for services, but it takes time for the impact to be translated to the economy."

Major European indices all dropped through afternoon trading, including the FTSE 100 in London which dipped into the red after earlier gains.

Wall Street's main indices opened lower, after the previous day's rally.

While raising its rate for a 12th time in a row, the BoE upgraded its British GDP forecast, adding there would be only a small impact from recent turmoil in the commercial banking sector.

BoE governor Andrew Bailey said the UK would this year experience "modest but positive economic growth and a much smaller increase in unemployment", after predicting a recession six months ago.

- More data for the Fed -

In the United States, the Fed has raised interest rates 10 times in a row in a bid to control rising prices, and hinted that any future decision on an increase will be data-dependent going forward.

US data released Thursday showed that producer prices rose 0.2 percent last month, slightly below expectations.

It comes a day after data showed US consumer prices had dipped further, though only marginally, from 5.0 percent in March to 4.9 percent in April.

The US consumer price index reading was the lowest in two years and a tad below what was expected, possibly giving the Fed a little room to take a break in its long-running rate hike campaign.

But observers said further evidence was needed to show that rate hikes were bearing fruit.

The April figure was far above the Fed's stated goal of two percent, which some analysts said meant it was unlikely officials would consider cutting rates at the end of the year, as some investors had been betting on.

This helped to support the dollar against major rivals Thursday.

"We need more... prints to clarify that inflation is definitely declining," said Priya Misra at TD Securities.

Investors are also tracking the political battle over raising the US debt ceiling, with Democrats and Republicans unable to reach a deal just weeks before the country runs out of cash to pay its bills.

Thursday trading was also subdued in Asia after more data from China suggesting a slow recovery after lifting pandemic curbs.

Producer prices in the world's second-biggest economy fell for the seventh consecutive month, due to sluggish domestic demand and lower commodity costs.

- Key figures around 1340 GMT -

London - FTSE 100: DOWN 0.6 percent at 7,692.59 points

Frankfurt - DAX: DOWN 0.6 percent at 15,800.75

Paris - CAC 40: DOWN 0.2 percent at 7,343.81

EURO STOXX 50: DOWN 0.5 percent at 4,287.32

New York - Dow: DOWN 0.8 percent at 33,254.18

Tokyo - Nikkei 225: FLAT at 29,126.72 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 19,743.79 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,309.55 (close)

Euro/dollar: DOWN at $1.0920 from $1.0985 on Wednesday

Pound/dollar: DOWN at $1.2542 from $1.2627

Dollar/yen: DOWN at 133.87 yen from 134.34 yen

Euro/pound: UP at 87.05 pence from 86.98 pence

Brent North Sea crude: DOWN 0.8 percent at $75.58 per barrel

West Texas Intermediate: DOWN 1.2 percent at $71.68 per barrel

burs-rox/lth

S.Keller--BTB