LONDON: US markets opened lower Wednesday but remained close to record highs, while London fell on the strong pound as spiking UK inflation sparked talk of a Bank of England interest rate hike.
The Dow Jones Industrial Average and tech-heavy Nasdaq both dropped in early trading and by mid-afternoon in Europe London's FTSE 100 remained firmly in the red.
Data released early Wednesday showed UK annual inflation rose to a near decade-high of 4.2 percent in October on higher energy bills.
The news sent the pound jumping as traders priced in a December interest rate hike from the Bank of England, emboldened also by Tuesday's upbeat UK jobless data.
"Stock markets have been struggling to build a strong earnings season recently as inflation and interest rates have topped the list of investors' concerns over the coming months," OANDA analyst Craig Erlam said.
"Gone are the days when bad news (data) is good news and central bank inaction keeps the party going in equity markets".
That was less true across the Channel in Europe, where European Central Bank chief Christine Lagarde has pushed back on talks of rate rises even as far out as 2023.
Her deputy Luis de Guindos told Bloomberg TV Wednesday that "the reality check is going to be the evolution of inflation next year".
"If you look at the drivers, the transitory nature of these drivers of inflation are quite clear," he added -- suggesting no shift in eurozone monetary policy for now.
Frankfurt and Paris were both slightly higher by mid-afternoon, while the euro fell against the pound and the dollar.
European stocks mostly rise; London hit by strong pound
And Turkey's lira fell to a new record low against the greenback as President Recep Tayyip Erdogan promised to "lift the interest rate burden from citizens" -- even as inflation runs close to 20 percent.
Oil prices sank as traders digested rising US crude reserves, indicating weaker demand in the world's top crude consumer.
Oil falls as US gasoline stock draw raises prospect of SPR release
"It is a mixed picture for European markets with the FTSE 100 under pressure... following a spike in the pound against the euro on the back of hot UK inflation figures," said Interactive Investor analyst Victoria Scholar.
"Travel and leisure is at the bottom... amid concerns about rising Covid cases while banks and basic resources are outperforming."
Inflation continues to fuel expectations that global central banks will be forced to tighten monetary policy quicker than expected.
Tuesday data showing a strong US retail sector provided more support to calls for the Federal Reserve to act sooner to prevent overheating and make sure prices do not run out of control.
Top Fed official James Bullard said the bank should take a "more hawkish" shift and that the tapering of its vast bond-buying programme -- which has helped support an extended global equity rally -- "could move faster".
In Asia, Hong Kong retreated for the first time after a six-day run-up, while Tokyo, Sydney, Seoul, Singapore, Mumbai, Manila and Wellington also fell.
However, Shanghai and Taipei reversed early losses while there were mild gains in Bangkok and Jakarta.
Key figures around 1445 GMT
New York - Dow: DOWN 0.1 percent at 36,091.68 points
London - FTSE 100: DOWN 0.4 percent at 7,297.78
Frankfurt - DAX: UP 0.1 percent at 16,259.99
Paris - CAC 40: UP 0.1 percent at 7,156.88
EURO STOXX 50: UP less than 0.1 percent at 4,403.31
Tokyo - Nikkei 225: DOWN 0.4 percent at 29,688.33 (close)
Hong Kong - Hang Seng Index: DOWN 0.3 percent at 25,650.08 (close)
Shanghai - Composite: UP 0.4 percent at 3,537.37 (close)
Euro/dollar: DOWN at $1.1316 from $1.1320 at 2200 GMT
Pound/dollar: UP at $1.3486 from $1.3430
Euro/pound: DOWN at 83.92 pence from 84.29 pence
Dollar/yen: DOWN at 114.59 yen from 114.82 yen
Brent North Sea crude: DOWN 0.6 percent at $81.96 per barrel
West Texas Intermediate: DOWN 0.9 percent at $80.04 per barrel