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World shares mostly lower as US rate hike relief rally fades

TOKYO (AP) – Global shares were mostly lower yesterday after the United States (US) Federal Reserve raised its key interest rate by three-quarters of a point and signalled more rate hikes were coming to fight inflation.

European benchmarks and US futures slipped after Tokyo and some other markets tracked Wall Street’s gains of the day before.

Shares in New York rallied after the Fed’s hike, the biggest since 1994, as investors initially took heart from Chair Jerome Powell’s comments suggesting future rate increases may be more modest.

But analysts warned the gains might be short-lived given the extent that high inflation has seeped into the world economy.

France’s CAC 40 sank 2.1 per cent to 5,906.32. Germany’s DAX dropped 2.6 per cent to 13,130.64. Britain’s FTSE 100 shed 2.1 per cent to 7,118.55.

The future for the S&P 500 was 2.3 per cent lower at 3,707.00, while the future for the Dow industrials gave up 1.8 per cent to 30,105.00. On Wednesday, the the S&P 500 climbed 1.5 per cent in its first gain in six sessions, after it tumbled into bear market territory earlier in the week. The Dow Jones Industrial Average finished one per cent higher, while the Nasdaq composite jumped 2.5 per cent.

The Swiss National Bank raised rates by half a percentage point, to a still low minus 0.25 per cent. Taiwan’s central bank raised its key rate by 0.125 basis points to 1.5 per cent.

“The clear read-through here is the FOMC (Fed) has unleashed the central bank Hawkish Genie from the bottle, and we should expect more aggressive follow-through from other central banks except those who are economically challenged,” Stephen Innes of SPI Asset Management said.

In Asian trading, Japan’s benchmark Nikkei 225 added 0.4 per cent to finish at 26,431.20.

Australia’s S&P/ASX 200 gave up earlier gains, falling nearly 0.2 per cent to 6,591.10. South Korea’s Kospi edged 0.2 per cent higher to 2,451.41. Hong Kong’s Hang Seng shed 2.2 per cent to 20,845.43, while the Shanghai Composite fell 0.6 per cent to 3,285.38.

The Bank of Japan started a two-day policy meeting that ends today. The Japanese central bank is under pressure to act given downward pressures on the yen from US rate hikes and super-low rates in Japan. But its aim has been to foster sustainable inflation after years of fending off deflation, or falling prices.

Investors have been selling yen and buying dollars in anticipation of higher yields from dollar-denominated holdings. Japanese politicians and the central bank chief have expressed worries about the declining yen, but no dramatic policy changes are expected.

Japan recorded a nearly JPY2.4 trillion trade deficit last month, its 10th straight month of a red ink, the Finance Ministry reported. Japan racked up its highest imports for May since 1979, as surging energy prices and a weak yen sent the value of imports soaring. Japan imports almost all its energy.

In energy trading, benchmark US crude dropped USD0.83 cents to USD114.48 a barrel in electronic trading on the New York Mercantile Exchange. It shed USD3.62 on Wednesday to USD115.31 a barrel. Brent crude, the international standard, gave up USD1.01 to USD117.50 a barrel.