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Growth worries, U.S. and UK rate hints hit shares

Reuters  |  LONDON 

By Nigel Stephenson

(Reuters) - Stocks fell in and on Thursday as investor concern over the pace of economic growth hit in mining and retail sectors while the prospect of tighter monetary policy in the United States and pushed up the dollar and bond yields.

U.S. stock futures signalled a rocky start on Wall Street after the Federal Reserve raised interest rates, as widely expected, and signalled another hike could follow this year.

In emerging markets, Russian fell 4 percent as risks grew of expanded sanctions and the price of oil fell.

European shares, already led down by mining stocks as the stronger dollar pushed metals prices lower, extended losses after data showed British consumers, who have been the drivers of the economy are feeling the impact of rising inflation.

"I don't think this is a surprise to anyone in terms of the narrative about how weak and stretched the consumer is and will be for the next quarters," JPMorgan Asset Management market strategist David Stubbs said.

"If retail sales are weak then the pie is contracting and someone is going to get hammered. Those that are unable to deal with that are going to see a much weaker bottom line."

U.S. numbers on Wednesday showed a similar picture on the other side of the Atlantic - retail sales fell more than expected in May.

In a sign that the squeeze on consumers may get tighter before long, three Bank of England policymakers voted to raise rates against five for keeping rates on hold. Economists polled by had expected a 7-1 vote in favour of no change.

The pan-European STOXX 600 index dropped 0.7 percent, led lower by the retail sector, down 1.8 percent and heading for its worst day in eight months, and the basic resources sector, which fell 1.4 percent.

Britain's DFS Furniture fell 21 percent after the company said a dip in demand and customer uncertainty about the economic outlook meant it would not meet profit expectations.

The prime cause of rising inflation has been weakness in the pound, which has fallen 15 percent against the dollar since topping $1.50 in the early hours of last June 24, when it initially appeared Britons had voted to remain in the EU.

Sterling edged up after the BoE decision but reversed course after finance minister Philip Hammond pulled out of a high-profile speaking engagement because of a deadly fire at a tower block.

He had been expected to speak about the need for a Brexit deal with the EU that suited the needs of British business.

The dollar was up 0.4 percent against a basket of major peers.

"Long-term Fed expectations remain very much supported. That is the main reason why the dollar is remaining supported for now," Credit Agricole currency strategist Manuel Oliveri said.

The euro was down 0.5 percent at $1.1164, its weakest for more than two weeks, while the yen was down a similar amount at 110.07 per dollar.

The Fed raised interest rates for the second time this year, by a quarter percentage point to a target range of 1.00-1.25 percent. It also gave a first clear outline of plans to shed its $4.5 trillion bond portfolio built up in three rounds of quantitative easing stimulus.

A Washington Post report that U.S. President Donald Trump was under investigation for possible obstruction of justice added to investor worries and undermined risk appetite.

HEAVY METAL

The stronger dollar pushed copper down 0.6 percent to $5,663 a tonne, having hit a one-week low of $5,642.

The prospect of tighter monetary policy and the fact the Fed talked about shrinking its balance sheet pushed euro zone government bond yields higher.

German 10-year yields, the benchmark for borrowing costs in the bloc, rose 5 basis points to 0.28 percent, a one-week high.

Later in the day, the bond market focus is likely to shift to Greece as euro zone finance ministers meet to discuss a deal with the International Monetary Fund that could pave the way for new loans for Athens.

Oil prices, which are having a negative impact on inflation worldwide, hit six-week lows with inventories high and doubts over whether the OPEC producers group would be able to implement agreed output cuts.

Brent crude, the international benchmark, was down 17 cents a barrel at $46.83.

The firmer dollar pushed gold down 0.4 percent to $1,256 an ounce.

For Live blog on European and stock see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

(Additional reporting by Hideyuki Sano in TOKYO, Ritvik Carvalho and Abhinav Ramanarayan, and Jan Harvey in LONDON; Editing by Louise Ireland)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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