Volkswacht Bodensee - Markets extend losses with Wall St as rate hopes dim

The losses in equities extended a more than week-long sell-off that came on the back of forecast-beating data and warnings from Federal Reserve officials that they were in no rush to lower borrowing costs.

A second straight day of weak demand in a Treasuries auction forced yields -- a proxy for interest rates -- to extend a recent advance.

Traders are now focusing on the release Friday of the crucial personal consumption expenditures (PCE) index, the Fed's preferred gauge of inflation, hoping for signs that prices are being brought under control enough to allow officials to ease monetary policy.

The central bank's "Beige Book" survey of the world's top economy suggested the outlook had become gloomier, with discretionary spending cooling and consumers more sensitive to costs in recent weeks.

It also said job gains were largely modest to negligible.

The report provided a little hope that the Fed's tight policy stance was having some effect, though with inflation still stubbornly well above its two percent target, rate-cut hopes remain dimmed.

Still, Cantor Fitzgerald's Eric Johnston said the latest spike in Treasury yields might not be entirely down to sticky prices.

"Bond yields may be moving higher mainly due to supply of bonds and the continued massive deficit -- and not because of a concern around inflation or strong economy," he said.

All three main indexes retreated in New York, with the Dow off more than one percent.

Asia followed the US lead.

Tokyo, Hong Kong, Seoul, Wellington and Taipei all gave up more than one percent, while there were also losses in Shanghai, Singapore, Manila, Mumbai, Bangkok and Jakarta.

Sydney joined them, with mining giant BHP shedding around 1.7 percent after giving up on its proposed $49-billion takeover of British rival Anglo American, which would have been one of the biggest in the industry and created a copper titan.

London, Paris and Frankfurt all fell at the open.

Hopes for a softening of the Fed's monetary policy have been weighed by comments from a succession of decision-makers saying they wanted to see more data convincing them that inflation was on its way back to two percent.

The latest was Atlanta Fed chief Raphael Bostic, who saw a cut potentially coming at the end of the year, though many of the indicators he closely watched were moving in the right direction.

"My outlook is that if things go according to what I expect -- inflation goes slowly, the labour market slowly and orderly moves back into a sort of a weaker stance, but a stable-growth stance," he told a conference.

"I'm looking at the end of the year, the fourth quarter, as the time where we might actually think about and be prepared to reduce rates."

- Key figures around 0715 GMT -

Tokyo - Nikkei 225: DOWN 1.3 percent at 38,054.13 (close)

Hong Kong - Hang Seng Index: DOWN 1.5 percent at 18,204.64

Shanghai - Composite: DOWN 0.6 percent at 3,091.68 (close)

London - FTSE 100: DOWN 0.2 percent at 8,167.63

Dollar/yen: DOWN at 156.75 from 157.70 yen on Wednesday

Euro/dollar: DOWN at $1.0795 from $1.0804

Pound/dollar: DOWN at $1.2684 from $1.2702

Euro/pound: UP at 85.10 from 85.03 pence

West Texas Intermediate: DOWN 0.4 at $78.95 per barrel

Brent North Sea Crude: DOWN 0.4 percent at $83.30 per barrel

New York - Dow: DOWN 1.1 percent at 38,441.54 (close)

K.Sutter--VB