Volkswacht Bodensee - Equities retreat with US rate worries back in focus

Hopes that central bankers would start rolling back months of rate hikes have faded in recent weeks, on worries that inflation pressures will persist in coming months, not least due to soaring oil prices.

All eyes are on a key speech by Federal Reserve chief Jerome Powell later Monday, ahead of the central bank's next policy meeting at the end of October -- but already US Treasury yields were again rising as bond markets softened.

"The Fed and ECB are practically done with hikes. Rather it's all about the risk that rates don't get cut -- by enough, or in a timely fashion," analysts at ING said in a research note.

Early gains seen in Europe on news of the US government funding deal were reversed after futures trading indicated opening losses on Wall Street, where analysts noted that the latest debt agreement is only a temporary fix for a few weeks.

"Investors are clearly not impressed by the latest kicking of the can down the road. So, the focus has quickly returned to rising oil prices, and high interest rates," said Fawad Razaqzada, a market analyst at StoneX.

Even a eurozone unemployment rate that fell to 6.4 percent in August failed to lift sentiment.

"It's been a testing time for markets as investors weigh up the likelihood of sticky inflation and interest rates remaining higher for longer," said Russ Mould, investment director at brokerage AJ Bell.

In Asia, Tokyo closed slightly lower, giving up early gains spurred by a positive Bank of Japan business confidence survey as sentiment reverted to risk-avoidance.

The Tankan survey showed increasing optimism among Japan's largest manufacturers for a second-straight quarter.

Asian markets were somewhat subdued with Hong Kong, South Korea and India closed for holidays, while markets in mainland China were closed for a week-long holiday.

Among those trading, Singapore, Sydney, Wellington, Kuala Lumpur and Manila were in the red while Taipei, Jakarta and Bangkok saw gains.

On foreign exchange markets, the yen was weakening towards the 150 level against the dollar, which was also rising against the euro.

The yen's weakness is fuelling speculation that the government may step in to prop up the currency, which has been hammered by the Bank of Japan's refusal to move away from its ultra-loose monetary policy even as the Fed considers lifting interest rates further.

Oil resumed its climb on Monday, continuing to be lifted by extended output cuts by key suppliers Russia and Saudi Arabia, as investors await an OPEC ministerial meeting on Wednesday.

- Key figures around 1345 GMT -

New York - Dow: DOWN 0.2 percent at 33,435.19 points

London - FTSE 100: DOWN 0.7 percent at 7,554.83

Frankfurt - DAX: DOWN 0.4 percent at 15,320.99

Paris - CAC 40: DOWN 0.5 percent at 7,099.45

EURO STOXX 50: DOWN 0.4 percent at 4,158.02

Tokyo - Nikkei 225: DOWN 0.3 percent at 31,759.88 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

Shanghai - Composite: Closed for a holiday

Euro/dollar: DOWN at $1.0525 from $1.0573 Friday

Pound/dollar: DOWN at $1.2145 from $1.2199

Euro/pound: FLAT at 86.67 pence from 86.66 pence

Dollar/yen: UP at 149.79 yen from 149.37 yen

Brent North Sea crude: UP 0.4 percent at $92.55 per barrel

West Texas Intermediate: UP 0.2 percent at $90.94 per barrel

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L.Maurer--VB