Overseas Stocks Sink As Higher U.S. Inflation Dampens Hopes For More Fed Rate Cuts

Monday, December 17th 2007, 6:44 am

By: News On 6

HONG KONG (AP) _ Asian and European markets slid Monday after signs of accelerating inflation in the U.S. dampened hopes that the U.S. Federal Reserve will cut interest rates further to shore up the struggling American economy.

Benchmark indices in five Asian markets _ Australia, Hong Kong, Singapore, India and Taiwan _ sank more than 3 %.

Investors sold off stocks globally Monday, their first chance since Wall Street soured on a report showing U.S. consumer prices rose 0.8 % in November, the largest increase in more than two years. That raised questions about the Fed's options for supporting the economy, which has been buffeted by a credit crisis and housing slump, by lowering interest rates.

Many more investors have come to agree that inflation, not a lack of growth, is the top threat to the U.S. economy.

Asian investors pay close attention to the U.S. economy because it is a major export market.

Hong Kong's benchmark Hang Seng index sank 967.06 points, or 3.51 %, to 26,596.58 points, its lowest since Nov. 23. All 43 blue chips in the index fell.

``Only if (U.S.) Christmas sales data are exceptionally strong may the Hang Seng Index end the year above its current level,'' said Philip Chan, head of research at CAF Securities Ltd.

Japan's Nikkei 225 index declined 264.72 points, or 1.71 %, to 15,249.79 points, bringing its four-day loss to 5 %.

Australia's benchmark S&P/ASX 200 index plunged 3.5 % to a three-month low, while Taiwan's key stock index dropped 3.5 % to a nine-month low.

In India, meanwhile, the Sensex measure on the Bombay Stock Exchange dropped 3.8 % by its close, and the S&P Nifty index on the broader National Stock Exchange fell 4.5 %, or 270 points, to register its biggest point fall in a single day.

Markets in Europe were also down in early trading.

Britain's benchmark FTSE-100 dropped 1.42 % to 6,306, Germany's DAX Index slipped 1.45 % to 7,833 and France's CAC-40 fell 1.43 % to 5,525.

Hong Kong property stocks were hit hard on diminished hopes for lower interest rates. Hong Kong's currency is pegged to the U.S. dollar and interest rate moves by the Fed are usually matched by Hong Kong's monetary authority and local banks.

Cheung Kong Holdings and Sun Hung Kai Properties both fell sharply.

In mainland China, stocks also fell after a top central bank official warned against excess real estate lending, renewing fears of further controls on bank loans.

The benchmark Shanghai Composite Index lost 2.6 % to 4,876.8.