San Francisco Frontiers - Stock markets retreat after central bank rate hikes

After opening mixed, Wall Street's main indices were modestly lower in late morning trading.

Losses were sharper in Europe, where Frankfurt, London and Paris all lost around 1.5 percent.

Earlier, Asian markets had been lifted by renewed AI optimism.

"There isn't much conviction in key corners of the capital markets," said Patrick O'Hare at Briefing.com.

The Bank of Japan raised interest rates to a three-decade high on Friday, but the yen sank against the dollar on fears the pace of hikes might be slower than expected.

That came after the US Federal Reserve lifted borrowing costs, providing relief to traders concerned that policymakers were not moving quickly enough to address a spike in inflation that could deal a blow to the world's biggest economy.

The European Central Bank has also recently tightened monetary policy, while the Bank of England this week held its benchmark interest rate while signalling possible hikes ahead.

Oil prices fell around two percent on hopes that Saudi Arabia was moving to restore about half of crude shipments within days after they were disrupted by the stoppage of its East-West pipeline to the Red Sea, before paring losses.

The conduit, even more important since the effective closure of the Strait of Hormuz by Iran, was shut last week after being targeted by Yemen's Iran-backed Houthis.

But oil prices rebounded following a Bloomberg report that Saudi Arabia's national oil company Aramco oil company had informed at least two European refineries that they had not been allocated crude oil shipments next month.

The financial news agency's sources said Aramco's decision applied to all European customers.

Crude prices, which soared around a fifth in September, have fallen over the past three days, but international benchmark Brent remains over $100 a barrel.

- Battling inflation -

The surge in oil has been among the main catalysts for rising inflation since the United States and Israel began their war against Iran at the end of February.

The latest moves in oil and the Fed's action kept the 10-year US Treasury bond yield, a key indicator of borrowing costs throughout the world's biggest economy, around five percent.

Japan's stock market was helped by a drop in the yen against the dollar that came in the wake of the Bank of Japan's well-telegraphed decision to lift rates to their highest level since 1995.

The yen slipped to more than 157 to the greenback, compared with around 156 earlier.

The fall in the Japanese currency came after "two committee members voted against the hike, which suggests the BoJ will not be able to embark on a fast pace of rate hikes", said Kathleen Brooks, research director at XTB.

"The yen has sold off against the dollar over the past five days, returning to early-September levels and making a stronger case for continued intervention in the yen," said Andrew Melville, head of research at Block Scholes.

Tokyo and Washington intervened to prop up the yen in July as the prospect of a wider spread of interest rates put downward pressure on the Japanese unit.

The spread between French and German 10-year bond yields reached one percentage point for the first time since 2012 on Friday, a day after Paris proposed to 54 billion euros in savings in the 2027 budget.

That would take the public deficit to five percent of gross domestic product (GDP), which the government acknowledged will in fact rise this year to 5.4 percent despite pledges to reduce it.

- Key figures at around 1530 GMT -

New York - Dow: DOWN 0.4 percent at 51,571.02 points

New York - S&P 500: DOWN 0.1 percent at 7,627.40

New York - Nasdaq Composite: DOWN less than 0.1 percent at 26,400.16

London - FTSE 100: DOWN 1.5 percent at 10,659.13 (close)

Paris - CAC 40: DOWN 1.5 percent at 8,065.02 (close)

Frankfurt - DAX: DOWN 1.6 percent at 25,304.06 (close)

Tokyo - Nikkei 225: UP 1.4 percent at 65,018.95 (close)

Hong Kong - Hang Seng Index: UP 0.6 percent at 24,750.78 (close)

Shanghai - Composite: UP 0.9 percent at 3,911.87 (close)

Dollar/yen: UP at 156.93 yen from 155.96 yen on Thursday

Euro/dollar: DOWN at $1.1469 from $1.1480

Pound/dollar: UP at $1.3376 from $1.3358

Euro/pound: DOWN at 85.77 pence from 85.94 pence

West Texas Intermediate: DOWN 0.2 percent at $97.07 per barrel

Brent North Sea Crude: DOWN 0.2 percent at $104.60 per barrel

G.Miller--SFF