San Francisco Frontiers - Global markets plunge on hawkish Fed

Frankfurt lost 2.5 percent at the close, Paris ended off 2 percent as investors shrugged off a survey showing the EU bloc's economic activity accelerated in April while London lost 1.4 percent on the session.

Wall Street followed the glum trend as the Dow was 1.6 percent in the red mid-session while the S&P index and the tech-rich Nasdaq both showed similar losses.

Helping to batter London was a sterling slump against the dollar to an 18-month low after data showed tumbling British retail sales amid a cost-of-living crisis. The euro also slid against the US currency.

Oil prices slumped on demand fears arising from rising interest rates in the United States and ongoing Covid restrictions in China.

"(Price) risks are certainly more tilted to the upside, given the war in Ukraine and a potential embargo on Russian exports, but lockdowns in China and the risk of a Fed-driven economic slowdown are also significant," observed Craig Erlam, Senior Market Analyst.

- 'Cat among pigeons' -

Fed Chairman Jerome Powell, who has signalled that the Fed will have to move more aggressively to counter decades-high US inflation, stated on Thursday that a half-point interest rate increase was "on the table" for next month's meeting, sending Wall Street tanking.

"Further hawkish comments from the Federal Reserve Chair put another cat among the pigeons in a day of violent swings," said Richard Hunter, head of markets at Interactive Investor.

"Quite apart from the widely expected 0.5 percent rate hike in May, this could also imply similar rises in subsequent months."

That stoked worries the Fed could send the US economy's pandemic recovery back into reverse.

"While the news should not have come as too much of a surprise, investors rushed for the exit as concerns of over-tightening and recession came back into focus," said Hunter.

Fawad Razaqzada, market analyst with City Index and FOREX.com, said the Fed signalling had left sentiment downbeat and that "the damage has already been done."

Nonetheless, Thomas Mathews, markets economist with Capital Economics, forecast that "this hiking cycle looks increasingly likely to be a sharp but short one in most cases, potentially ending as soon as next year."

Sharp price rises are forcing major global central banks to hike interest rates, in turn curbing recovery from the pandemic.

Higher lending rates tend to weigh on companies' share prices as they increase interest repayments on loans, while also further reducing consumers' incomes.

In Asia earlier, Tokyo stocks slid more than 1.5 percent even as inflation data from Japan was in line with market expectations.

But Shanghai finished marginally higher as some Chinese Covid curbs were eased and the nation's securities regulator pushed banks and insurers to buy more stocks to lift ailing equities.

- Key figures at 1600 GMT -

New York - Dow: DOWN 1.6 percent at 34,217.17 points

London - FTSE 100: DOWN 1.4 percent at 7,521.68 (close)

Paris - CAC 40: DOWN 2.0 percent at 6,581.42 (close)

Frankfurt - DAX: DOWN 2.5 percent at 14,142.09 (close)

EURO STOXX 50: DOWN 2.4 percent at 3,840.01

Tokyo - Nikkei 225: DOWN 1.6 percent at 27,105.26 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,638.52 (close)

Shanghai - Composite: UP 0.2 percent at 3,086.92 (close)

Euro/dollar: DOWN at $1.0788 from $1.0834 late on Thursday

Dollar/yen: UP at 128.77 yen from 128.38 yen

Pound/dollar: DOWN at $1.2851 from $1.3030

Euro/pound: UP at 83.94 pence from 83.15 pence

Brent North Sea crude: DOWN 1.7 percent at $106.15 per barrel

West Texas Intermediate: DOWN 1.6 percent at $102.17 per barrel

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M.Powell--SFF