Stocks retreat as Fed officials fan rate hike fears

Stock markets retreated Friday as a string of top Federal Reserve officials pressed their cases for fighting inflation, raising concerns the bank will embark on an aggressive campaign that could see four interest rate hikes this year.

London's losses were capped and the British pound climbed as official data showed the UK economy recovered to above its pre-pandemic level in November.

"The FTSE 100 is demonstrating its relative resilience," noted Victoria Scholar, head of investment at Interactive Investor.

She added, however, that "the next UK economic data readings are likely to lay bare the pressures from Omicron".

Across the Atlantic, a pledge by Fed chief Jerome Powell earlier this week to rein in surging prices while also nurturing recovery in the world's top economy provided a much-needed lift to investor sentiment and helped propel a rally across equities.

Data showing US inflation appeared to be stabilising added to the positivity and tempered fears about the end of the ultra-loose monetary policies, which have been key to a near two-year markets rally and global economic rebound.

But the mood darkened Thursday after the officials' comments.

Lael Brainard, in her Senate hearing to become Powell's deputy, said rates could rise as early as March, a move supported by Fed Bank of Philadelphia chief Patrick Harker, who also raised the possibility of another three before the end of the year.

The heads of the Chicago and St Louis Feds saw a similar number of hikes, while Raphael Bostic of Atlanta said he was open to a March move.

Minutes from the bank's December policy meeting showed officials were keen to act quickly to tame prices, and speed up the taper of its massive bond-buying programme, then begin offloading its Treasury holdings -- measures that have been used to keep rates at all-time lows.

"A recent chorus of Fed speakers... have said they are open to raising interest rates in March, which means the possibility of four rate hikes this year is growing," said OANDA senior market analyst Edward Moya.

"With four (policy board) voters now expecting to hike in March, financial markets can't rule out it is possible that they could deliver five rate hikes this year."

The Nasdaq led steep losses across Wall Street Thursday, dropping more than two percent, as tech firms are more susceptible to higher borrowing costs.

The selling continued in Asia and Europe on Friday.

Elsewhere, oil prices hit the highest levels for more than two months heading into the weekend on recovering demand for crude.

Key figures around 1215 GMT

London - FTSE 100: DOWN 0.2 percent at 7,550.11 points

Frankfurt - DAX: DOWN 0.7 percent at 15,915.74

Paris - CAC 40: DOWN 0.7 percent at 7,150.52

EURO STOXX 50: DOWN 0.9 percent at 4,278.07

Tokyo - Nikkei 225: DOWN 1.3 percent at 28,124.28 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 24,383.32 (close)

Shanghai - Composite: DOWN 1.0 percent at 3,521.26 (close)

New York - DOW: DOWN 0.5 percent at 36,113.62 (close)

Euro/dollar: DOWN at $1.1452 from $1.1469

Pound/dollar: UP at $1.3724 from $1.3704

Euro/pound: DOWN at 83.44 pence from 83.50 pence

Dollar/yen: DOWN at 113.79 yen from 114.16 yen late Thursday

Brent North Sea crude: UP 0.8 percent at $85.19 per barrel

West Texas Intermediate: UP 0.7 percent at $82.72 per barrel