London - World stocks mostly halted their recent rally on Wednesday before the latest policy signal from the US central bank, while UK stocks and bonds fell after Bank of England minutes showed two rate-setters voted to raise interest rates earlier this month.
Sterling jumped after the BoE minutes showed two of the nine policymakers unexpectedly voted to raise rates, while record-low money-market rates in the euro zone took the euro to its weakest against the dollar in almost a year.
Stocks had risen this week after strong US housing data and lower-than-expected UK inflation figures, which suggested economic activity was rising but not fast enough to force interest rates higher any time soon.
The BoE minutes prompted some to reassess, though.
“The voting has surely caught the market by surprise, given that the (latest) inflation number was so low, but now we know that we have two hawkish members in the committee,” said Naem Aslam, chief market analyst at Avatrade.
“This has lowered the bar for an increase in interest rates this year.”
Later in the day, minutes from the last Federal Reserve policy meeting will be released.
On Friday, Fed Chair Janet Yellen will address an annual gathering of policymakers in Jackson Hole, Wyoming, on Friday.
Riskier assets had been underpinned by a shift in attention away from the Ukraine-Russia conflict, but investors used the relatively calm economic and political backdrop to take some money out of the market.
The MSCI index of world stocks slipped 0.1 percent to 428 points, the major European bourses fell by up to 0.2 percent and US futures pointed to losses of around 0.2 percent at the open.
Britain's FTSE was down a third of one percent at 6760 points, Germany's DAX was off a similar amount at 9300 points and France's CAX was down 0.4 percent at 4236 points.
Shares in Denmark's Carlsberg sank almost 6 percent after the company said deteriorating conditions in Russia would hit overall profit this year.
Dutch brewer Heineken jumped 6 percent after first-half profit rose.
Earlier in Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.1 percent, while Tokyo's Nikkei ended the day flat.
Japan reported a wider-than-expected trade deficit in July of 964 billion yen, pushing the dollar as high as 103.26 yen, its highest since early April.
Sterling rose 0.25 percent to $1.6650, rebounding from a five-month low earlier this week around $1.66, and Britain's 10-year gilt yield rose 3 basis points to 2.43 percent.
The euro remained under pressure, in part from the decline of overnight interbank lending rates in the euro zone, which are coming ever closer to zero.
Eonia rates are now just 0.005 percent.
The euro fell below $1.33 for the first time in 11 months after German producer prices fell more than expected in July, fuelling concerns that deflationary forces are spreading to the core of the 18-nation bloc.
“This is a combination of expectations of very low rates for a very long period of time, but also a reflection that the market has raised the odds of the European Central Bank being drawn into taking more serious action,” said Elwin de Groot, a senior market economist at Rabobank in Utrecht, The Netherlands.
Key US and euro zone government bond yields were little changed.
The 10-year German government bond yield hovered just below 1 percent, the 2-year German yield was down slightly before an auction later in the day and the benchmark 10-year US yield was flat at 2.40 percent.
The 10-year Treasury yield had risen for the last three days, rebounding from a 14-month low of 2.30 percent last week.
In commodities, gold was stuck below $1,300 an ounce after shedding 1.3 percent in the last three sessions.
Brent crude futures recovered from near 14-month lows, ticking up a quarter of one percent to $101.80 a barrel, although ample supplies are putting prices at risk of renewed losses. - Reuters