London (AFP) - European stocks sank Thursday after the US Federal Reserve and other central banks in Europe hiked interest rates despite turmoil in the banking sector.
The dollar stumbled on the uncertain Fed outlook while oil also retreated on energy demand worries.
The Fed's quarter-point move, one week after the European Central Bank's hefty half-point increase, was followed Thursday by similar hikes in Britain and Norway.
Switzerland's central bank went with a half-percentage-point increase as it declared that authorities had "put a halt to the crisis" at Credit Suisse after they engineered the embattled bank's buyout by domestic rival UBS.
Markets had rallied earlier this week after authorities moved to prevent contagion from the collapse of three US regional banks earlier this month.
But Wall Street slumped Wednesday after Fed chief Jerome Powell warned the banking sector crisis was likely to bring "tighter credit conditions for households and businesses" that would affect "economic outcomes".
He also said there needed to be more supervision and regulation of banks to prevent another crisis.
The Fed, however, signalled that it could soon pause its rate hike campaign as its accompanying statement replaced a previous warning about the need for "ongoing increases" with a conditional one saying "some additional policy firming may be appropriate".
Europe's major stock markets slid Thursday after a mixed session in Asia.
"Everyone is feeling a little bit edgy -- and the shift in tone from the Fed to 'some policy firming may be appropriate' from the previous line of 'ongoing hikes' has just led to more uncertainty," said AJ Bell investment director Russ Mould.
There was also "concern the Fed sees further vulnerabilities in the financial system which are still to be tested", he added.
Market jitters remain over rising interest rates because they are widely regarded as a catalyst behind the collapse of Silicon Valley Bank (SVB).
Policymakers had faced calls to slow or pause aggressive hiking campaigns following the sector's biggest failures since the 2008 financial crisis.
Further vulnerabilities?
"Before the collapse of SVB, signs the Federal Reserve was nearing the end of its rate-hiking cycle would have been cause for the market to put on its party hat and set off some fireworks," Mould said.
"Now everyone is feeling a little bit edgy and the shift in tone from the Fed...has just led to more concern the Fed sees further vulnerabilities in the financial system which are still to be tested."
Nerves were also jangled after US Treasury Secretary Janet Yellen declared Wednesday that authorities were not looking at a blanket increase in deposit insurance for banks.
"Yellen's comments seem to have reignited worries about the US banking system which we thought had been put to bed," IG analyst Chris Beauchamp told AFP.
"In hindsight this will seem like a major error," he cautioned.
Investors also fret over higher interest rates because they ramp up companies' loan repayments and increase their costs, while slashing consumers' disposable incomes.
Oil prices fell after a recent rise as traders fret over the effect on demand from more rate hikes and a possible slowdown in economic activity.
Key figures around 1230 GMT
London - FTSE 100: DOWN 0.8 percent at 7,509.19 points
Frankfurt - DAX: DOWN 0.3 percent at 15,166.30
Paris - CAC 40: DOWN 0.3 percent at 7,111.09
EURO STOXX 50: DOWN 0.2 percent at 4,188.88
Tokyo - Nikkei 225: DOWN 0.2 percent at 27,419.61 (close)
Hong Kong - Hang Seng Index: UP 2.3 percent at 20,049.64 (close)
Shanghai - Composite: UP 0.6 percent at 3,286.65 (close)
New York - Dow: DOWN 1.6 percent at 32,030.11 (close)
Euro/dollar: UP at $1.0885 from $1.0856 on Wednesday
Pound/dollar: UP at $1.2313 from $1.2273
Euro/pound: DOWN at 88.39 pence from 88.47 pence
Dollar/yen: DOWN at 131.37 yen from 131.38 yen
Brent North Sea crude: DOWN 0.3 percent at $76.44 per barrel
West Texas Intermediate: DOWN 0.5 percent at $70.55 per barrel
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