San Francisco Frontiers - Hot US inflation data hammers equities

The annual consumer price index (CPI) came in at 3.5 percent in March, up 0.3 percentage points from February, the Labor Department said. A widely-watched "core" inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8 percent.

The month-on-month gains of 0.4 percent for headline and core inflation also came in higher than expected by economists.

"US CPI came in hotter than expected at +0.4 percent month-on-month, sending traders to exit bets on a June rate cut and dump stocks," said Neil Wilson, chief market analyst at Finalto.

The blue-chip Dow fell 0.9 percent, the broader S&P 500 1.1 percent and the tech-heavy Nasdaq Composite 1.3 percent as trading got under way on Wall Street.

The yields on US government debt jumped as did the dollar, including sending the yen to a new 34-year-low of more than 152 to the greenback for the first time.

European equities, which had been trading higher ahead of the data, slid into the red.

At the start of this year investors had expected the Fed could make six rate cuts of 0.25 percentage points this year. Those expectations have steadily dropped.

"The market has now priced out a June cut and swaps indicated just" 0.5 percentage points in cuts to the Fed's main policy rate, said Wilson.

"The key question now is whether this is really going to dissuade the Fed and what sort of communication we get next," he added.

Wilson said there are many reasons why the Fed may still cut rates in June …"but if the market moves too far out of step then the Fed may be forced to wait a little longer."

Some observers have suggested that no rate cuts could be the price to pay for economic health and strong earnings. The US corporate earnings season begins later this week.

The European Central Bank, buoyed by slowing inflation, is expected to keep eurozone borrowing costs on hold one last time Thursday while laying the ground for a first interest rate cut in June.

Asian traders on Wednesday shrugged off a decision by Fitch to downgrade China's sovereign credit outlook to negative based on increased risks to the country's public finances.

Hong Kong surged 1.9 percent, boosted by a rally in tech firms including Tencent after Chinese authorities approved a number of overseas online games.

Sydney, Mumbai, Bangkok and Wellington were also in the green, though Shanghai and Taipei edged lower.

Tokyo fell as a stronger yen weighed on exporters. The currency picked up against the dollar following less-than-dovish comments from Bank of Japan boss Kazuo Ueda.

- Key figures around 1330 GMT -

New York - Dow: DOWN 0.9 percent at 38,529.48 points

New York - S&P 500: DOWN 1.1 percent at 5,153.58

New York - Nasdaq Composite: DOWN 1.3 percent at 16,099.15

London - FTSE 100: DOWN less than 0.1 percent at 7,931.68

Paris - CAC 40: DOWN 0.7 percent at 7,994.02

Frankfurt - DAX: DOWN 0.3 percent at 18,023.11

EURO STOXX 50: DOWN 0.5 percent at 4,966.85

Tokyo - Nikkei 225: DOWN 0.5 percent at 39,581.81 (close)

Hong Kong - Hang Seng Index: UP 1.9 percent at 17,139.17 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,027.33 (close)

Dollar/yen: UP at 152.45 yen from 151.76 yen on Tuesday

Euro/dollar: DOWN at $1.0774 from $1.0860

Pound/dollar: DOWN at $1.2595 from $1.2678

Euro/pound: DOWN at 85.53 pence from 85.64 pence

Brent North Sea Crude: UP 0.5 percent at $89.90 per barrel

West Texas Intermediate: UP 0.5 percent at $85.66 per barrel

burs-rl/cw

L.Ramos--SFF