Volkswacht Bodensee - US stocks drop as producer inflation surges

Analysts said the surprise spike raised concerns that President Donald Trump's tariffs were having an impact on businesses while they have yet to hit consumers.

The broad-based S&P 500 index of leading companies and the tech-heavy Nasdaq fell in opening deals in New York, retreating from record highs set the previous day.

The Paris and Frankfurt stock markets were up in afternoon deals while London fell as data showed the UK economy had slowed in the second quarter, though less than feared, as Trump's tariffs came into effect.

The producer price index (PPI) rose 0.9 percent on a month-on-month basis in July, much higher than the 0.2 percent forecast by analysts after a flat reading in June.

"The large spike in the Producer Price Index (PPI) this morning shows inflation is coursing through the economy, even if it hasn't been felt by consumers yet," said Chris Zaccarelli, chief investment officer for US-based Northlight Asset Management.

The shock figure came after data on Tuesday showed that US consumer inflation held steady in July at 2.7 percent on an annual basis.

The two diverging inflation figures complicate the task of the Federal Reserve, widely expected to begin cutting rates in September.

Zaccarelli said the PPI figure was a "most unwelcome surprise to the upside and is likely to unwind some of the optimism of a 'guaranteed' rate cut next month".

Bitcoin, which had hit a record high of $124,514.59 on rate-cut hopes, tumbled to $117,974 following the PPI report.

"Today's hot PPI data has reduced the case for a September rate cut ever so slightly," said Fawad Razaqzada, analyst at City Index and Forex.com.

He said, however, that the market was "still nearly fully" expecting the Fed to cut its rate next month.

"It is likely that the Fed will see through the rise as the one-time increase and their concerns about the jobs market may make them more open to the idea of resuming rate cuts from September," he said.

Elsewhere, oil prices rose as traders awaited Friday's Alaska summit between Trump and Russian President Vladimir Putin, whose sanctions-hit country is a major crude producer.

- Key figures at around 1340 GMT -

New York - Dow: DOWN 0.4 percent at 44,756.83 points

New York - S&P 500: DOWN 0.3 percent at 6,449.33

New York - Nasdaq: DOWN 0.1 percent at 21,681.81

London - FTSE 100: DOWN 0.1 percent at 9,154.59

Paris - CAC 40: UP 0.4 percent at 7,834.75

Frankfurt - DAX: UP 0.5 percent at 24,297.17

Tokyo - Nikkei 225: DOWN 1.5 percent at 42,649.26 (close)

Hong Kong - Hang Seng Index: DOWN 0.5 percent at 25,489.59 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,666.44 (close)

New York - Dow: UP 1.0 percent at 44,922.27 (close)

Euro/dollar: DOWN at $1.1658 from $1.1704 on Wednesday

Pound/dollar: DOWN at $1.3544 from $1.3577

Dollar/yen: DOWN at 147.29 yen from 147.40 yen

Euro/pound: DOWN at 86.10 pence from 86.21 pence

Brent North Sea Crude: UP 1.4 percent at $66.54 per barrel

West Texas Intermediate: UP 1.5 percent at $63.61 per barrel

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R.Fischer--VB