Volkswacht Bodensee - Markets tumble as hardline Republicans threaten US debt deal

Worries that the Federal Reserve might increase interest rates next month, along with further signs the Chinese recovery was fading, added to the downbeat mood on trading floors.

The buoyant mood that started the week -- after President Joe Biden and House Speaker finalised a debt deal -- was giving way to a fear that the far-right Freedom Caucus could do the unthinkable and torpedo it.

Members on both sides of the political spectrum have raised concerns about the agreement, with Republicans saying it does not have enough spending cuts and the left wing of the Democratic Party unhappy Biden agreed to any limits at all.

While McCarthy has described the deal as "transformational" and expressed confidence the bill will pass, leading Freedom Caucus member Chip Roy called it a "turd sandwich".

"Not one Republican should vote for this deal. It is a bad deal. No one sent us here to borrow an additional $4 trillion to get absolutely nothing in return," Roy said at a Freedom Caucus news conference.

He later warned McCarthy would face a "reckoning". That came as another GOP Representative, Dan Bishop, called party members to vote McCarthy out as speaker.

Still, House Democratic leader Hakeem Jeffries remained confident, telling Bloomberg Television: "We will be able to get this bill over the finish line tomorrow."

But with the House vote due later Wednesday, nervous investors were shifting out of risk assets, sending Asian markets into the red.

Hong Kong led losses, dropping more than two percent. Shanghai was also well down after data showed China's manufacturing activity contracted even further last month as leaders struggle to kickstart the world's number-two economy.

The country's growth has stalled this year, despite expectations for a surge after strict Covid rules were lifted in November.

There were also big losses in Tokyo, Sydney, Seoul, Singapore, Taipei, Wellington, Manila and Jakarta.

Data showing inflation remained sticky in the United States ramped up expectations the Fed will hike rates again next month, denting hopes it will pause after more than a year of tightening.

"More likely than not the Fed will continue to tighten and that is going to lead to a recession," said Shana Sissel at Banrion Capital Management.

"It's going to take time before we start to see the real impact of the Fed policy on the system."

Recession worries were increased by news that US consumer confidence hit a six-month low in May, with the jobs market and future business conditions among the key issues.

The uncertain demand outlook caused by the stuttering US and Chinese economies, as well as long-running tensions between the two powers, also weighed on oil prices.

Both main contracts extended Tuesday's loss of more than four percent, with traders keeping tabs on an upcoming meeting between OPEC and other major producers.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: DOWN 1.1 percent at 30,976.54 (break)

Hong Kong - Hang Seng Index: DOWN 2.1 percent at 18,213.63

Shanghai - Composite: DOWN 0.6 percent at 3,205.39

Euro/dollar: DOWN at $1.0708 from $1.0739 on Tuesday

Dollar/yen: UP at 139.83 yen from 139.80 yen

Pound/dollar: DOWN at $1.2393 from $1.2404

Euro/pound: DOWN at 86.41 pence from 86.48 pence

West Texas Intermediate: DOWN 0.2 percent at $69.30 per barrel

Brent North Sea crude: DOWN 0.2 percent at $73.41 per barrel

New York - Dow: DOWN 0.2 percent at 33,042.78 (close)

London - FTSE 100: DOWN 1.4 percent at 7,522.07 (close)

O.Lorenz--BTB