San Francisco Frontiers - European stocks mostly drop with eyes on US Fed

"Wall Street also looks set for a more subdued session, with futures pointing to declines for both the S&P 500 and the Nasdaq after yesterday's strong gains," noted Susannah Streeter, chief investment strategist at Wealth Club.

"After the recent rally, investors are catching a breath, with profit-taking looking likely as attention turns back to the outlook for US interest rates."

Asian stock markets made some gains after Wall Street's three main indices ended Tuesday on a strong note, with the Dow at another record and the tech-heavy Nasdaq chalking up its best quarter in six years.

Stock markets globally enjoyed a largely fruitful first half of the year thanks to a surge in tech stocks on the AI boom, but ructions in the sector over the past few weeks have raised concerns that a bubble has formed.

While markets have endured such issues in the past, and bounced back to scale more heights, there is talk that the latest pullback might be more lasting.

That puts Thursday's US non-farm payrolls figures for June in focus, with a strong reading likely to ramp up expectations and deal a fresh blow to stocks, while a below-forecast reading could provide a boost.

"While AI remains a long-term structural growth theme, investors are becoming increasingly focused on valuations and whether the enormous investment in AI infrastructure will translate into earnings growth quickly enough to justify current share prices," noted Fiona Cincotta, analyst at City Index traders.

"At the same time, a more hawkish Federal Reserve has weighed on high growth stocks."

She said markets were eyeing a 60-percent chance of Fed hiking rates by a quarter point in September as inflation stays high, with some predicting three increases before January.

The dollar continued to benefit from talk of rate hikes, keeping the yen stuck around 40-year lows versus the US currency.

Warsh is lined up to give a speech Wednesday at a bankers' conference in Portugal, which could provide fresh insight into the bank's thinking after it took a hawkish turn last month.

Eurozone inflation meanwhile slowed in June after spiking as the Iran war sent energy prices sky-high, data showed, boosting chances of the European Central Bank keeping interest rates on hold.

Consumer prices in the 21-nation single currency area rose 2.8 percent compared with the same month a year earlier, down from 3.2 percent in May, said EU statistics agency Eurostat.

Elsewhere, oil prices dropped despite US-Iran concerns after the pair exchanged fresh fire.

- Key figures around 1045 GMT -

London - FTSE 100: DOWN 0.4 percent at 10,456.87 points

Paris - CAC 40: DOWN 0.6 percent at 8,353.36

Frankfurt - DAX: UP 0.3 percent at 25,066.40

Tokyo - Nikkei 225: UP 0.6 percent at 70,474.96 (close)

Shanghai - Composite: UP 0.4 percent at 4,112.45 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

New York - Dow: UP 0.3 percent at 52,319.20 (close)

Dollar/yen: UP at 162.69 yen from 162.59 yen on Tuesday

Euro/dollar: DOWN at $1.1399 from $1.1418

Pound/dollar: DOWN at $1.3254 from $1.3256

Euro/pound: DOWN at 86.01 pence from 86.13 pence

Brent North Sea Crude: DOWN 1.0 percent at $72.31 a barrel

West Texas Intermediate: DOWN 1.0 percent at $68.84 a barrel

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G.Collins--SFF