San Francisco Frontiers - Sticky US inflation hits stocks, London strikes record

Investors had been awaiting eagerly for the latest inflation data as the US Federal Reserve has indicated that it is looking for it to come down before relenting in its campaign of rising interest rates.

While the consumer price index (CPI), an important inflation gauge, eases from last year's decades-high levels, the dip to an annual rate of 6.4 percent in January was higher than the 6.2 percent expected in the analyst consensus forecast compiled by Bloomberg.

The 0.5 percent month-on-month rise was higher than the 0.1 percent gain in December, driven by rising rent and gasoline costs.

"The key takeaway from the report is that there has been a clear deceleration from peak inflation," said market analyst Patrick O'Hare at Briefing.com.

"However, the inflation rates are not nearly low enough to suggest the Fed would even be thinking about cutting rates this year," he added.

Stocks have recently rallied on hopes that having moved past peak inflation would allow the Fed to pause and maybe even begin reversing rate hikes this year.

Neal Keane, head of sales trading at the international brokerage ADSS, said the inflation report combined with a booming jobs market means investors shouldn't rule out the Fed even increasing the size of its expected rate hike next month, from a quarter to a half percentage point.

"Markets will reassess recent peak inflation themes, and with more strong US data likely to force the Fed to continue to hike rates for longer, we can expect further stock market weakness, a stronger dollar, and weaker commodities."

The dollar, which had slid against main rivals on expectations of a considerable drop in inflation, rebounded after the data was released.

Wall Street's main stock indices opened lower, with the Dow dropping 0.2 percent.

The data sapped much of the gains made earlier by European equities.

- FTSE flirts with 8,000 -

In London, the benchmark FTSE 100 shares index struck an all-time high 7,996.35 points in morning deals after reaching new heights in recent sessions.

"The tailwinds from another decent market performance in the US overnight have given the FTSE another boost, propelling it to a new record high and towards the psychologically important 8,000 barrier," Interactive Investor analyst Richard Hunter told AFP.

"The index continues to attract investment interest with its exposure to banks and energy companies still seeing the benefits of rising interest rates and a recovering Chinese economy respectively."

Shares in Vodafone won four percent after US telecoms giant Liberty Global snapped up a near five-percent stake in its British rival but ruled out a takeover.

Asian equity indices ended on a mixed note after a shaky couple of weeks.

The yen won support also as Japanese Prime Minister Fumio Kishida nominated respected economics professor Kazuo Ueda to take the helm at the Bank of Japan.

Ueda will be tasked with kickstarting the torpid Japanese economy while also facing pressure to join international peers in tightening monetary policy.

Oil prices tumbled after recent gains fuelled by key producer Russia's decision to curb output following more Western sanctions over Ukraine.

- Key figures around 1430 GMT -

London - FTSE 100: UP 0.1 percent at 7,957.12 points

Frankfurt - DAX: DOWN less than 0.1 percent at 15,391.95

Paris - CAC 40: UP less than 0.1 percent at 7,212.00

EURO STOXX 50: DOWN less than 0.1 percent at 4,238.87

New York - Dow: DOWN 0.2 percent at 34,167.16

Tokyo - Nikkei 225: UP 0.6 percent at 27,602.77 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 21,113.76 (close)

Shanghai - Composite: UP 0.3 percent at 3,293.28 (close)

Euro/dollar: UP at $1.0724 from $1.0723 on Monday

Dollar/yen: UP at 132.94 yen from 132.42 yen

Pound/dollar: DOWN at $1.2136 from $1.2139

Euro/pound: UP at 88.34 pence from 88.33 pence

Brent North Sea crude: DOWN 2.4 percent at $84.53 per barrel

West Texas Intermediate: DOWN 2.8 percent at $77.88 per barrel

burs-rl/lth

B.Johnson--SFF