San Francisco Frontiers - Stocks extend losses after Fed chief's rates warning

Wall Street's main indices opened lower, extending losses of between three and four percent on Friday immediately following Powell's speech where he clearly stated his priority is bringing inflation down from four-decade highs, even at the expense of economic growth.

"Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance," he told the Jackson Hole gathering of global monetary policymakers.

The comments dealt a blow to markets, which had in recent weeks enjoyed a bounce from June lows as weak economic data and a slowdown in price rises fanned hopes the Fed would temper its interest rate hike drive and bring down rates next year.

Powell "didn't splash some cold water on the stock market's face," said market analyst Patrick O'Hare at Briefing.com. "He dumped a whole bucket of ice water on it and the stock market wasn't ready for the ice bucket challenge."

Yanxi Tan of Malayan Banking said: "The game of assessing the Fed outlook has shifted from guessing how high the peak rate might be to also understanding how long it might stay there for."

Analysts said the chances of a third successive 75 basis-point increase next month had risen, with US Treasury yields -- a gauge of future interest rates -- surging. That in turn helped propel the dollar higher.

The dollar closed in on the 140 yen mark not seen since 1998, but an easing in European gas prices helped the euro recup its losses.

"Powell sent the dollar rallying ... on the back of a solid divergence between the decidedly hawkish Fed, and more hawkish, but increasingly worried other central banks," said Swissquote Bank analyst Ipek Ozkardeskaya.

"Other major central banks are also hawkish, but they are less aggressive than the Fed," she added.

Asian stocks ended sharply lower save for Shanghai, which eked out a small gain.

In afternoon European trading Paris and Frankfurt were also nursing losses. London was closed for a holiday.

European gas prices retreated from record highs set last week after Germany said Sunday that it is replenishing its gas stocks more quickly than expected and should meet an October target early despite drastic Russian supply cuts.

An emergency meeting of EU energy ministers was called for next week, with European Commission chief Ursula von der Leyen saying the bloc is working on an "emergency intervention" to rein in electricity prices sent soaring by Russia's war in Ukraine as well as a structural reform of the market.

Oil prices extended gains despite talk that surging interest rates could choke off the economic recovery as traders focused on supply concerns.

The commodity has fallen in recent weeks on bets that demand will be hit by an expected drop in economic output, particularly from China as it continues to battle a Covid-19 outbreak with lockdowns.

But fresh unrest in Libya, warnings that an Iran nuclear deal was not imminent and a possible OPEC output cut kept prices elevated.

- Key figures at around 1330 GMT -

New York - Dow: DOWN 0.8 percent at 32,039.07 points

EURO STOXX 50: DOWN 1.1 percent at 3,562.85

Frankfurt - DAX: DOWN 0.9 percent at 12,858.66

Paris - CAC 40: DOWN 1.2 percent at 6,199.37

London - FTSE 100: Closed for a holiday

Tokyo - Nikkei 225: DOWN 2.7 percent at 27,878.96 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 20,023.22 (close)

Shanghai - Composite: UP 0.1 percent at 3,240.73 (close)

Euro/dollar: UP at $1.0002 from $0.9964 Friday

Pound/dollar: DOWN at $1.1713 from $1.1743

Euro/pound: UP at 85.40 pence from 84.85 pence

Dollar/yen: UP at 138.46 yen from 137.38 yen

West Texas Intermediate: UP 1.7 percent at $94.65 per barrel

Brent North Sea crude: UP 1.5 percent at $102.51

burs-rl/lth

D.Brown--SFF