London (AFP) - Stock markets mostly dropped on Friday, with investors focussed firmly on the outlook for interest rate hikes as central banks battle to bring down sky-high inflation.
The dollar rose sharply against its main rivals, while oil prices steadied as traders assessed the risk of a possible global recession.
European gas prices were heading towards a fresh record-high closing price as the Ukraine war impacts supplies.
Elsewhere, bitcoin slumped nearly nine percent as investors shunned risky assets.
A two-month equity markets rally from June lows appears to have run out of steam.
"Stocks will most likely struggle for direction for the rest of the summer as Wall Street is still uncertain with how aggressive the Fed will be in September," said OANDA trading platform analyst Edward Moya.
Patrick O'Hare, analyst at Briefing.com, said the recent rally has been driven by the market "embracing a belief that the Fed won't have to get overly restrictive with its monetary policy before ultimately shifting to an easing stance."
The gains have come in the face of a number of problems that have caused unease on trading floors, including China-US tensions, the Ukraine war, supply chain snarls and extreme weather across much of the northern hemisphere.
The US Federal Reserve and other central banks have begun hiking interest rates to get a grip on soaring inflation, but those increases had been largely priced into the stock market in the first half of the year when equities slumped.
Darkening clouds
Thus, the darkening clouds on the economic horizon mean that central banks may not need to raise rates as sharply as many investors believed, triggering the rebound in stocks.
A statement by policymakers and comments from Fed chief Jerome Powell after last month's board meeting suggested they could be considering slowing the pace of rate hikes as the economy slows.
That was followed by a drop in US inflation, which lifted markets.
But there has been downward pressure after minutes from the Fed's most recent meeting showed policymakers are determined to keep lifting borrowing costs until prices are brought under control.
Several officials have also recently reasserted the need to continue to tighten monetary policy to get inflation down from four-decade highs, and poured cold water on hopes for possible rate cuts in the new year.
Data this week showing British inflation had jumped into the double digits, as well as German producer price inflation surging to 37 percent on higher energy costs, also dampened sentiment on the chances monetary policymakers will tap the brakes on interest rate hikes.
"The penny appears to have dropped that central banks are likely to have to go much harder on rates if they are to have any chance of getting on top of the inflation genie," said market analyst Robert Hewson at CMC Markets.
The longer interest rates remain higher, the greater is the risk of a possible recession.
All eyes are now on next week's central bankers' symposium in Jackson Hole, Wyoming, where finance chiefs and central bankers will speak, with all attention on the utterances of Powell.
Wall Street's three main indices were lower in morning trading, with the tech-heavy Nasdaq Composite slumping two percent.
In Europe, London's blue-chip FTSE-100 index just barely managed to stay in the green, but Paris and Frankfurt stocks slumped.
Most Asian markets fell.
Key figures at around 1530 GMT
New York - Dow: DOWN 0.8 percent at 33,722.94 points
EURO STOXX 50: DOWN 1.3 percent at 3,727.33
London - FTSE 100: UP 0.1 percent at 7,550.37 (close)
Frankfurt - DAX: DOWN 1.1 percent at 13,544.52 (close)
Paris - CAC 40: DOWN 0.9 percent at 6,495.83 (close)
Tokyo - Nikkei 225: FLAT at 28,930.33 (close)
Hong Kong - Hang Seng Index: UP 0.1 percent at 19,773.03 (close)
Shanghai - Composite: DOWN 0.6 percent at 3,3258.08 (close)
Euro/dollar: DOWN at $1.0039 from $1.0095 Thursday
Pound/dollar: DOWN at $1.1804 from $1.1937
Euro/pound: UP at 85.04 pence from 84.56 pence
Dollar/yen: UP at 137.16 yen from 135.88 yen
West Texas Intermediate: UP 0.6 percent at $91.00 per barrel
Brent North Sea crude: UP 0.2 percent at $96.81 per barrel
burs-rl/spm
