Volkswacht Bodensee - Global stock markets retreat on eve of US inflation data

If the official consumer price data Wednesday come in above analysts' forecasts, the markets could see a sharp sell-off, analysts warned.

With inflation already at the highest level in 40 years, concern is growing that further interest rate increases by the world's major central banks could go too far and tip the global economy into recession.

Federal Reserve officials in recent days have stressed that more hikes are coming to tame soaring inflation, with a third straight three-quarter point increase on the table next month.

The inflation data "could effectively set the mood for the rest of the summer," said OANDA analyst, Craig Erlam.

"That seems quite dramatic, but if we fail to see a drop in the headline rate... it could really take the wind out of the sails of stock markets as it would be very difficult for the (Fed) to then hike by anything less than 75 basis points in September," the expert said.

While US gasoline prices have been coming down, which takes some of the pressure off American families, the overall rate remains high.

Swissquote Bank analyst Ipek Ozkardeskaya said the recent drop in energy and commodity prices "should have a cooling effect... but higher labour costs could keep inflation sticky at undesirably high levels."

Oil prices reversed some of the prior day's gains and remain around six-month lows as recession fears mount and investors fret over the impact on demand.

The markets are also keeping an eye on Iran nuclear talks after the European Union submitted a "final text" at negotiations to salvage a 2015 deal.

An agreement could open the way for Tehran to resume sales of crude on international markets, partly filling the gap left by the ban on Russian exports following the invasion of Ukraine.

US tech shares tumbled after a second major chip maker issued an earnings warning.

"It seems that the technology sector along with the rest of the economy is slowing," said Tom Cahill of Ventura Wealth Management.

- Key figures at around 2045 GMT -

New York - Dow: DOWN 0.2 percent at 32,774.41 (close)

New York - S&P 500: DOWN 0.4 percent at 4,122.47 (close)

New York - Nasdaq: DOWN 1.2 percent at 12,493.93 (close)

London - FTSE 100: UP 0.1 percent at 7,488.15 (close)

Frankfurt - DAX: DOWN 1.1 percent at 13,534.97 (close)

Paris - CAC 40: DOWN 0.5 percent at 6,490.00 (close)

EURO STOXX 50: DOWN 1.1 percent at 3,715.37

Tokyo - Nikkei 225: DOWN 0.9 percent at 27,999.96 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,003.44 (close)

Shanghai - Composite: UP 0.3 percent at 3,247.43 (close)

Euro/dollar: UP at $1.0213 from $1.0194 Monday

Pound/dollar: UP at $1.2071 from $1.2079

Euro/pound: UP at 84.57 pence from 84.35 pence

Dollar/yen: UP at 135.12 yen from 134.98 yen

Brent North Sea crude: DOWN 0.1 percent at $96.57 per barrel

West Texas Intermediate: DOWN 0.1 percent at $90.70 per barrel

K.Thomson--BTB