Volkswacht Bodensee - Stock markets drop, oil prices extend losses

Asian and European indices largely headed south, though London managed to rise modestly as the pound traded at the lowest level against the dollar in more than six months.

Wall Street ended mixed Monday following a congressional deal to avert an immediate US government shutdown, with traders fuelling a bond market sell-off.

"The hangover from strong economic data out in the US is still being felt, with the headache increasing about the likelihood of high interest rates setting in rattling nerves," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"Concerns are spreading that if higher borrowing costs bed in they will weigh heavily on companies and consumers, at a time when the effect of previous rate hikes has yet to be felt."

US Treasury yields remained high with the rate on the 10-year bond reaching the highest level since 2007, while the 30-year bond yield was at its highest since 2010.

Treasury bond yields are a closely watched proxy for US interest rates.

"This yield surge reflects the market's response to messaging from the Federal Reserve, indicating the central bank's commitment to keeping borrowing costs elevated to combat inflation," said SPI Asset Management's Stephen Innes.

"The global bond market sell-off has gained momentum, partly driven by the reprieve from a US government shutdown," he added.

Hong Kong led the equities decline in Asia, falling nearly 2.7 percent as the market reopened after a holiday weekend.

Going against the flow, heavily indebted Chinese property giant Evergrande saw its share price surge more than a quarter as it resumed trading in Hong Kong days after announcing that its boss was under criminal investigation.

On foreign exchange markets, the yen was hovering close to the psychological level of 150 to the dollar.

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.

Russia's currency meanwhile continued to weaken on signs the country's economy is facing slower growth and higher inflation as the fighting in Ukraine drags on.

The ruble crossed the psychological threshold of 100 to the dollar on the Moscow financial exchange -- having already done so in August before recovering -- raising the prospect of weaker spending power for Russians forced to pay more for imported goods.

- Key figures around 1100 GMT -

London - FTSE 100: UP 0.2 percent at 7,522.97 points

Frankfurt - DAX: DOWN 0.5 percent at 15,172.30

Paris - CAC 40: DOWN 0.4 percent at 7,039.95

EURO STOXX 50: DOWN 0.3 percent at 4,123.59

Tokyo - Nikkei 225: DOWN 1.6 percent at 31,237.94 (close)

Hong Kong - Hang Seng Index: DOWN 2.7 percent at 17,331.22 (close)

Shanghai - Composite: Closed for a holiday

New York - Dow: DOWN 0.2 percent at 33,433.35 points (close)

Dollar/yen: UP at 149.87 yen from 149.84 yen Monday

Euro/dollar: DOWN at $1.0474 from $1.0484

Pound/dollar: DOWN at $1.2059 from $1.2094

Euro/pound: UP at 86.85 pence from 86.66 pence

Brent North Sea crude: DOWN 0.6 percent at $90.18 per barrel

West Texas Intermediate: DOWN 0.4 percent at $88.46 per barrel

burs-bcp/js

L.Stucki--VB