Volkswacht Bodensee - Asian investors step up selling as rate hikes loom

Data showing prices rose at a record clip in the eurozone in August reinforced fears that central banks have a long road to run before they win their battle, which has fanned warnings of a recession in the world's leading economies.

Another drop on Wall Street came as Treasury yields -- a key gauge of future interest rates -- rose further as a broadly healthy report on US private jobs showed there was still plenty of wiggle room for the Fed to continue tightening monetary policy.

Meanwhile, another top Fed official signalled the bank was determined to keep lifting borrowing costs, mirroring comments by head Jerome Powell last week that there would be no let-up in the fight against inflation.

"My current view is that it will be necessary to move the Fed funds rate up to somewhat above four percent by early next year and hold it there," said Cleveland Fed President Loretta Mester in remarks prepared ahead of an event for the Dayton Area Chamber of Commerce.

"I do not anticipate the Fed cutting the Fed funds rate target next year."

Interest rates are currently at 2.25-2.5 percent, and there is a growing expectation they will be hiked by a bumper 75 basis points for a third successive meeting later this month.

A government jobs report Friday will be closely watched by traders hoping for an idea about the next move by the bank, which has said it will make its decision based on data.

In a further warning that policymakers had a win-at-all-costs mentality, Mester later told the audience: "Even if the economy were to go into a recession, we have to get inflation down."

The hawkish remarks out of the Fed have dealt a hefty blow to a rally in markets from their June lows.

And some have warned that more pain could be on the way, with Frances Stacy, of Optimal Capital Advisors, telling Bloomberg Radio: "I don't think we've seen the bottom for this year."

The downbeat mood in New York and Europe, which is also being buffeted by a major energy crisis, spread to Asia.

Tokyo, Hong Kong, Sydney, Seoul, Singapore, Wellington, Taipei and Jakarta were all deep in the red, though Shanghai eked out small gains with Manila.

The prospect of more US rate hikes continued to press the dollar higher against all other currencies, with the psychological 140 yen mark well within sight for the first time since 1998.

And analysts are speculating that a breach of that barrier could see the Bank of Japan intervene, though they also warned it was unlikely to make much difference owing to Tokyo's refusal to tighten its own monetary policy despite rising prices.

"There will likely be some sort of verbal intervention as 140 approaches," said David Lu, of NBC Financial Markets Asia.

"But an actual intervention is likely to be ineffective at this point where the dollar is rising broadly on US monetary policy prospects while there is no support for the yen from the Bank of Japan."

- Key figures at around 0230 GMT -

Tokyo - Nikkei 225: DOWN 1.5 percent at 27,673.14 (break)

Hong Kong - Hang Seng Index: DOWN 0.8 percent at 19,795.76

Shanghai - Composite: UP 0.3 percent at 3,210.75

Euro/dollar: DOWN at $1.0026 from $1.0054 on Wednesday

Pound/dollar: DOWN at $1.1584 from $1.1619

Euro/pound: UP at 86.55 pence from 86.50 pence

Dollar/yen: DOWN at 139.62 yen from 138.98 yen

West Texas Intermediate: DOWN 0.2 percent at $89.35 per barrel

Brent North Sea crude: DOWN 0.3 percent at $95.34 per barrel

New York - Dow: DOWN 0.9 percent at 31,510.43 (close)

London - FTSE 100: DOWN 1.1 percent at 7,284.15 (close)

P.Anderson--BTB