Volkswacht Bodensee - Equities mostly fall on hot US inflation before ECB

Forecast-busting US inflation figures dealt a blow to hopes for a June rate cut and forced traders to re-evaluate the Fed's outlook for monetary policy, with a warning that the next move could even be a hike.

Thursday's losses tracked a Wall Street selloff and saw the dollar strike a 34-year high against the yen, fuelling speculation Japanese authorities will step in to support their beleaguered currency.

The ECB is expected to hold its key interest rate at a record high again but could pave the way for a first cut in June as eurozone inflation eases -- in contrast with the United States. A decision is due at 1215 GMT.

World oil prices meanwhile sagged although Brent held above $90 per barrel on simmering tensions in the crude-rich Middle East, further stoking inflationary pressures.

- US inflation weighs -

"European markets struggle as the US inflation concerns continue to weigh on sentiment," noted analyst Joshua Mahony at trading firm Scope Markets.

"Equity bulls will hope that the ECB can turn the tide on market sentiment today, with (president) Christine Lagarde expected to take on a notably more dovish tone that could set us up for a rate cut in June," he added.

Falling interest rate tend to lift stock markets because they lower loan costs for businesses and individuals, boosting investment and disposable incomes -- and in turn stimulating economic activity.

Yet stronger-than-expected US inflation has prompted a recalibration of the outlook for Fed monetary policy.

"Inflation is refusing to lie down, which has forced investors to relinquish any lingering expectations of an imminent interest rate cut from the Federal Reserve," said Richard Hunter, head of markets at Interactive Investor, in reference to the US data.

Hunter added that the latest minutes from the Fed's most recent gathering implied that the US central bank's "battle against inflation has some way to go".

ECB policymakers, meanwhile, have kept euro-area borrowing costs on hold since October, after a historic run of hikes to bring runaway price rises under control.

But calls have been growing for cuts to begin as inflation falls rapidly and higher rates take their toll on the 20-nation single currency area.

- 'Future ECB cuts' -

"We expect the ECB to keep rates on hold... but the economic backdrop looks increasingly conducive for future cuts," noted Henk Potts, market strategist at Barclays Private Bank.

"Key indicators suggest that activity is stabilising and inflation is descending towards targeted levels."

US data showed Wednesday that the consumer price index (CPI) rose 0.4 percent on-month and 3.5 percent on-year -- both above consensus for the third month in a row -- and observers warned the pick-up might not be a blip but could point to a worrying trend.

It also came on the back of other data -- most recently a forecast-busting jobs report -- suggesting the world's number one economy was still in rude health despite borrowing costs being at a two-decade high and inflation well above target.

The reading will give Fed officials more to mull over ahead of their May policy meeting, with their recent guidance of three rate cuts this year now in doubt.

The dollar has meanwhile surged to 153.29 yen, the strongest since 1990, on the back of the US CPI reading. Tokyo authorities have said they would keep their options open on supporting the unit.

- Key figures around 1030 GMT -

London - FTSE 100: DOWN 0.2 percent at 7,947.31 points

Paris - CAC 40: DOWN 0.1 percent at 8,041.25

Frankfurt - DAX: DOWN 0.5 percent at 18,014.86

EURO STOXX 50: DOWN 0.4 percent at 4,981.04

Tokyo - Nikkei 225: DOWN 0.4 percent at 39,442.63 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 17,095.03 (close)

Shanghai - Composite: UP 0.2 percent at 3,034.25 (close)

New York - Dow: DOWN 1.1 percent at 38,461.51 (close)

Dollar/yen: UP at 153.22 yen from 152.96 yen on Wednesday

Euro/dollar: DOWN at $1.0737 from $1.0747

Pound/dollar: UP at $1.2544 from $1.2543

Euro/pound: DOWN at 85.59 pence from 85.67 pence

Brent North Sea Crude: DOWN 0.2 percent at $90.26 per barrel

West Texas Intermediate: DOWN 0.1 percent at $86.13 per barrel

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F.Stadler--VB