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Last Updated: Thursday, 18 May 2006, 07:43 GMT 08:43 UK
Asia mirrors falling world stocks
Woman walks in front of Japanese electronics stocks board
Traders will be closely watching interest rate movements
Stock markets across Asia have dropped sharply, reflecting similar falls in the US and the EU a day earlier, as fears grew of higher US interest rates.

The Nikkei fell below the 16,000 mark for the first time in eight weeks and shares dipped by 2.4% during trading.

Japan's drop was echoed in Hong Kong, South Korea, Taiwan, Australia and Singapore, which fell by up to 3%.

Higher-than-expected US consumer prices on Wednesday also worried the markets as oil prices boosted inflation.

South Asian markets followed suit, with Bombay's Sensex index sliding 872 points or 7.1% - a one-day record - to 11,346 points.

Inflation and interest rates

"The market is very afraid of inflation and about the possibility of [US] interest rate increases," said Kim Joong-hyan, a Seoul-based analyst with Goodmorning Shinan Securities.

The higher inflation figures could force the US central bank to raise interest rates further, which could hurt the prospects for economic growth.

"Rather than any domestic factor, I think the decline in US stocks is pretty much 100% responsible for the fall in Tokyo today," said Soichiro Monki, at Daiwa SB Investment.

Higher interest rates also make it more expensive for companies to borrow and thereby eat into company profits.

Mining stocks were particularly affected by the falling markets, with BHP Billiton losing 3.4% in Australia and the country's overall market falling by 1.5%.

South Korean markets dropped to 7-week lows - falling almost 3% - with lender Kookmin Bank, Shinhan Finance group and Samsung Electronics losing 2%.

Further turmoil

Falls in Asia came after the US index of leading shares, the Dow Jones industrial average, saw its biggest one-day fall in three years, knocking off $64bn from the value of the top 30 firms listed in the index.

Similarly Britain's FTSE 100 index lost 170 points - its biggest one-day fall since October 2002 - and 123bn was wiped off the value of Europe's top 300 firms on Wednesday.

Also prompting the fall across markets Wednesday was the release of eurozone inflation figures, which rose faster than expected to 2.4% in April.

This increases the likelihood of a rate increase by the European Central Bank next month from its existing 2.5% level.

Some analysts are saying that recent market upheaval could be a forerunner to more serious turmoil, with a sharp turnaround in expectations about the future course of inflation and interest rates worldwide.


MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
S&P 500
1115.71up
11.22 1.02%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes

SEE ALSO:
Shares slump across Europe and US
17 May 06 |  Business
Global sell-off begins to falter
16 May 06 |  Business
Why the dollar is falling so fast
15 May 06 |  Business
Weaker dollar hits world markets
12 May 06 |  Business
Surprise fall in US trade deficit
12 May 06 |  Business
US rates raised to five-year peak
10 May 06 |  Business
Weak retail figures hit US shares
11 May 06 |  Business



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