Volkswacht Bodensee - Stocks diverge as investors worry about rates

Many indices reversed direction a day after gaining on forecast-busting Chinese data that reinforced optimism the world's number two economy would bounce back strongly this year as it emerges from its pandemic isolation.

Sentiment soured, however, after Federal Reserve policymakers Raphael Bostic and Neel Kashkari pointed on Wednesday to rates going higher than forecast and for an extended period.

The eurozone annual inflation rate meanwhile fell by less than expected to 8.5 percent in February, the EU's statistics agency said Thursday.

"Stock market investors found no reason to cheer..., which meant that the likes of the (Frankfurt) DAX showed an immediate negative reaction to the numbers," noted City Index analyst Fawad Razaqzada.

European Central Bank chief Christine Lagarde said after the data was released more interest rate hikes may be needed in the eurozone after the half percentage point hike it has already signalled comes later this month.

Previously, the ECB said it would review look at the pace of its rate hikes.

"The latter is a burgeoning fear for the market as it relates to the March FOMC meeting," said Briefing.com analyst Patrick O'Hare, referring to the rate-setting committee at the US Federal Reserve.

He noted more investors are expecting a half percentage point hike, although most still expect a quarter-point hike.

"In terms of the broader market, the going concern is that policy rates and market rates are headed higher, and are apt to stay higher for longer because inflation is loitering at levels above the Fed's comfort level," he added.

There is a growing expectation rates would top out around 5.5 percent, though some commentators are tipping six percent, from the current 4.5-4.75 percent.

The comments came as the yield on 10-year US Treasuries -- a proxy for future rates -- broke four percent for the first time since November.

Talk of more aggressive US rate hikes boosted the dollar Thursday.

In the United States, Atlanta Fed chief Bostic warned Wednesday American interest rates could go well above five percent, adding that once inflation had come down to the bank's two percent target, officials should not loosen policy too soon.

"History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew," he wrote. "That happened with disastrous results in the 1970s."

Minneapolis boss Kashkari said he was still "open-minded" about backing a half-percentage-point hike at the next policy meeting, double the most recent increase.

"We're not yet seeing much of a sign of our interest-rate increases slowing down the services sector of the economy and that is concerning to me," he said.

- Key figures around 1430 GMT -

London - FTSE 100: FLAT at 7,913.58 points

Frankfurt - DAX: DOWN 0.3 percent at 15,260.04

Paris - CAC 40: UP 0.1 percent at 7,242.73

EURO STOXX 50: UP less than 0.1 percent at 4,217.19

New York - Dow: UP 0.2 percent at 32,730.41

Tokyo - Nikkei 225: DOWN 0.1 percent at 27,498.87 (close)

Hong Kong - Hang Seng Index: DOWN 0.9 percent at 20,429.46 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,310.65 (close)

Euro/dollar: DOWN at $1.0598 from $1.0672 on Wednesday

Pound/dollar: DOWN at $1.1926 from $1.2024

Euro/pound: UP at 88.86 pence from 88.71 pence

Dollar/yen: UP at 136.85 from 136.17 yen

Brent North Sea crude: UP 0.5 percent at $84.72 per barrel

West Texas Intermediate: UP 0.6 percent at $78.18 per barrel

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P.Anderson--BTB