Stock markets fall on rate fears

There are fears a US slowdown could hit global growth

Stock markets have fallen in Europe and Japan on Thursday, amid concerns that higher interest rates will slow world economic and corporate profit growth.

Japan's Nikkei closed down 463 points, or 3%, at 14,633, the biggest one-day drop in a year. It was the first time the index ended below 15,000 in 2006.

London's FTSE 100 finished 2.5% lower at 5562.90, while France's Cac shed 2.9% and Germany's Dax slid 2.7%.

US markets reversed early declines to end their session little changed.

Inflation concern

The main driver behind the recent losses have been concerns that the US, the world's largest economy, will need to keep raising interest rates to tackle inflation.

Earlier this week US Federal Reserve boss Ben Bernanke acknowledged that the central bank did have inflation concerns.

Volatility is not unusual in the stock market. We don't think of this as being particularly alarming Edward Lazear, White House economist

Global investors fear that an interest rate rise in the US will slow the American economy and that this will have an immediate knock-on effect on global business.

Adding the worries was the decision by the European Central Bank to raise its base eurozone rate by one quarter of a percentage point to 2.75%.

Analysts are now predicting that a further rate rise may come at the end of the summer, putting increased pressure on growth.

Edward Lazear, one of the White House's economists, looked to ease concerns about the size and speed of stock market declines.

"Volatility is not unusual in the stock market," Mr Lazear said on Thursday. "We don't think of this as being particularly alarming."

US markets did recover on Thursday, with the Dow Jones index finishing 7.92 points, or 0.1%, higher at 10,938.82. The broader S&P 500 finished up 0.1% at 1,257.93, while the technology-dominated Nasdaq declined 0.3% to 2,145.32.

'Tough time'

In Japan, the Nikkei's Thursday declines were led by exporters such as Honda.

"We're going through a tough time because we're not sure when the Fed will stop raising interest rates," said Han Yo-Seop, an analyst at Daewoo Securities.

The Nikkei has now lost some 2,800 points since hitting a five-year high of 17,563.37 just two months ago.

Its decline was echoed by similar falls across Asia.

India's benchmark Bombay Stock Exchange fell by more than 400 points to 9,398, its lowest level since January.