Volkswacht Bodensee - European stocks retreat before US inflation data

The Dow and the S&P 500 hit fresh record highs Thursday on Wall Street after an upward revision to US growth in the second quarter and bumper results from AI chip giant Nvidia.

Friday sees the release of key US inflation data, which could provide further guidance on interest rates after Federal Reserve chief Jerome Powell signalled a cut was likely in September.

"Markets are pricing in around a high probability of a cut by the Fed next month, and today's... inflation numbers will be a key data point for monetary policy setters," said Derren Nathan, head of equity research at Hargreaves Lansdown.

"Markets are keeping a close eye on the impact of tariffs on the prices of goods and services," he added.

"If inflation comes in hotter than expected, the path towards a drop in US borrowing costs in December will become a little less clear."

In Germany, data showed that unemployment in Europe's biggest economy topped three million in August for the first time in more than a decade.

Battered by high energy costs and fierce Chinese competition, German manufacturers were struggling even before US President Donald Trump erected new tariff walls.

Separate figures Friday showed that inflation slowed in France and Italy this month, and held steady in Spain.

The euro fell against the dollar, whose rise against the pound was greater.

In Britain, an influential think tank said Friday that the Labour government could raise billions of pounds by imposing a windfall tax on banks in the UK.

The biggest fallers on London's top-tier FTSE 100 index were lenders NatWest and Lloyds, which each shed around five percent in midday deals.

The report by the Institute for Public Policy Research suggested that banks could be targeted in the Labour government's autumn budget.

"Any such rumours are likely to have an exaggerated impact given the government's obvious need to raise more income in an attempt to mitigate its financial difficulties," said Richard Hunter, head of markets at Interactive Investor.

- Key figures at around 1100 GMT -

London - FTSE 100: DOWN 0.3 percent at 9,193.21 points

Paris - CAC 40: DOWN 0.5 percent at 7,726.88

Frankfurt - DAX: DOWN 0.4 percent at 23,935.36

Tokyo - Nikkei 225: DOWN 0.3 percent at 42,718.47 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 25,189.34

Shanghai - Composite: UP 0.4 percent at 3,857.93 (close)

New York - Dow: UP 0.2 percent at 45,636.90 points (close)

New York - S&P 500: UP 0.3 percent at 6,501.86 (close)

Euro/dollar: DOWN at 1.1667 from $1.1680 on Thursday

Pound/dollar: DOWN at $1.3458 at from $1.3508

Dollar/yen: UP at 147.18 yen from 146.97 yen

Euro/pound: UP at 86.69 at from 86.46 pence

West Texas Intermediate: DOWN 0.4 percent at $64.33 per barrel

Brent North Sea Crude: DOWN 0.4 percent at $67.69 per barrel

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G.Haefliger--VB