Volkswacht Bodensee - Stocks sink on higher interest rate fears

Wall Street extended losses, with the Dow Jones Industrial Average falling 1.3 percent near midday.

European markets had their worst session since March 15, with London closing 2.2 percent lower while Frankfurt shed 2.6 and Paris dropped 3.1 percent as the prospect of more rate hikes sent government bond yields higher.

Hong Kong led Asian losses, falling by three percent.

Equities were weighed down heavily by minutes released Wednesday on the Federal Reserve's last interest-rate meeting, which indicated that more hikes lay ahead aimed at bringing down elevated inflation.

While growth remains healthy for now, the prospect of more rate hikes has stoked worries that the Fed could tip the economy into recession, weighing on risk sentiment.

"The clear hawkish guidance spooked markets," said Michael Hewson, chief market analyst at CMC Markets UK.

"This apparent willingness by central banks to crush demand, and risk pushing the economy into a recession to get inflation under control, is prompting investors to pare down their exposure to equity markets, hence today's sell-off," Hewson said.

The release Thursday of hotter-than-expected US employment data from payroll firm ADP, which estimated that private employers added 497,000 new jobs in June, raised the prospect of further Fed rate hikes.

In addition, survey data showed that the US services sector activity picked up pace in June to record six consecutive months of expansion, suggesting the Fed still has a way to go in its fight against inflation.

The strong figures come ahead of Friday's closely watched government jobs data, which will give the Fed more food for thought ahead of its next rate-policy meeting on July 26.

The strength of the US jobs market has surprised economists who expected a bigger hit from the Fed's aggressive policies to counter inflation.

"If a rate hike this month wasn't already nailed on, it probably is now," said Craig Erlam, senior market analyst at trading platform OANDA.

"It's no longer a question of if the Fed hikes this month but how many more after that?"

The Fed minutes caused US bond yields -- the rate the government pays to borrow money -- to rise as investors anticipate more Fed hikes.

The UK government's borrowing costs also rose as the yield on five- and 10-year bonds reached 15-year peaks. French and German bond yields also jumped.

The Fed minutes showed policymakers were split on the decision to stand pat last month after 10 straight rate increases, surprising some commentators and dealing a blow to hopes the bank was nearing the end of its tightening cycle.

Those backing an increase cited a tight jobs market, stronger-than-expected economic activity and few signs that inflation was on the path to the US central bank's two-percent target.

In the end, however, all 11 voting members on the policy committee supported the pause, though the minutes said "almost all" agreed more tightening will likely be needed this year.

Markets have also been worried about the health of the Chinese economy as another round of downbeat data this week highlighted the tough work facing authorities as they try to kickstart growth after years of zero-Covid-induced sluggishness.

Investors were also tracking Treasury Secretary Janet Yellen's four-day visit to Beijing, aimed at stabilising tense relations between the world's two largest economies.

- Key figures around 1550 GMT -

New York - Dow: DOWN 1.4 percent at 33,817.20 points

London - FTSE 100: DOWN 2.2 percent at 7,280.50 (close)

Frankfurt - DAX: DOWN 2.6 percent at 15,528.54 (close)

Paris - CAC 40: DOWN 3.1 percent at 7,082.29 (close)

EURO STOXX 50: DOWN 2.9 percent at 4,223.09 (close)

Tokyo - Nikkei 225: DOWN 1.7 percent at 32,773.02 (close)

Hong Kong - Hang Seng Index: DOWN 3.0 percent at 18,533.05 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,205.57 (close)

Euro/dollar: UP at $1.0868 from $1.0857 on Wednesday

Pound/dollar: UP at $1.2712 from $1.2704

Dollar/yen: DOWN at 144.09 yen from 144.65 yen

Euro/pound: UP at 85.51 pence from 85.43 pence

Brent North Sea crude: DOWN 1.2 percent at $75.75 per barrel

West Texas Intermediate: DOWN 1.1 percent at $71.03 per barrel

burs-lth/ach

M.Odermatt--BTB