Gas price spike sends stocks sliding

London (AFP) –

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A brief 25 percent jump in European gas prices to record peaks on Wednesday fanned inflation concerns, sending equities sliding as investors worried higher prices could choke the global economic recovery.

Frankfurt, London and Paris equity markets lost around two percent at one point on worries that high prices for gas along with oil could accelerate inflation, forcing a tightening of monetary policy that would pull the rug out from the global economic recovery from the Covid-19 pandemic.

Expectations of hikes in higher interest rates are pushing up government bond yields, which makes them more attractive to investors than stocks in uncertain economic times.

"Stocks are enduring heavy losses today as a spike in government bond yields has sent a shock through the markets," said analyst David Madden at Equiti Capital.

Equity markets also fell in the US, where concerns about the pace of economic recovery are being accentuated by political deadlock that could halt plans to step up government spending and even trigger a US debt default.

- 'Panic and fear' -

"It's panic and fear with winter just around the corner," Commerzbank analyst Carsten Fritsch told AFP.

Europe's Dutch TTF gas price rocketed as high as 162.12 euros per megawatt hour, while UK prices soared to 407.82 pence per therm.

Concerns about supplies "could translate into higher costs of fuel moving into the winter months, a prospect which could further slow down economic recovery and worsen moods across markets," said XTB analyst Walid Koudmani.

Gas demand is also heightened in Asia, and particularly from China.

Signals by Russia that it would boost supplies led European gas prices to reverse direction and fall for the day.

"News that Russia will boost gas supplies has steadied market nerves a little this afternoon and helped temper those record price hikes but businesses are worried, and investors are too," said AJ Bell financial analyst Danni Hewson.

At the same time, oil has vaulted higher after OPEC and other major producers opted this week against increasing output by more than previously agreed -- despite tightening supplies and resurgent demand.

Brent oil soared to a fresh three-year peak at $83.47 per barrel, and New York's light sweet crude hit a seven-year pinnacle at $79.78 in early trading. But it later turned sharply lower as data showed a surprise large buildup in US supplies.

- Gas-to-oil switching -

Runaway gas prices are widely expected to ratchet up demand for crude, further spooking markets.

"To put it into context, benchmark gas prices are trading at the equivalent of more than $200 per barrel of oil," said PVM analyst Stephen Brennock.

"This should further encourage gas-to-oil switching and exacerbate the current supply deficit in the oil market."

In foreign exchange, the euro hit a 14-month low at $1.1529 on growing hopes of US monetary policy tightening.

The US Federal Reserve is widely expected to soon announce it will begin cutting back its massive bond-buying programme, with interest rates possibly rising as soon as next year.

Better-than-forecast private hiring data raised expectations that the government's official jobs data due out Friday will be sufficiently good for the Fed to push ahead to begin reducing stimulus in October.

Other central banks have also hinted at moves soon or have already acted.

On Wednesday, the Reserve Bank of New Zealand announced a first rate rise in seven years, joining the banks of South Korea and Norway.

Bitcoin reached a near five-month high of $54,494.

- Key figures around 1530 GMT -

New York - Dow: DOWN 1.0 percent at 33,988.86 points

EURO STOXX 50: DOWN 1.3 percent at 4,011.62

London - FTSE 100: DOWN 1.2 percent at 6,995.87 (close)

Frankfurt - DAX: DOWN 1.5 percent at 14,973.33 (close)

Paris - CAC 40: DOWN 1.3 percent at 6,493.12 (close)

Tokyo - Nikkei 225: DOWN 1.1 percent at 27,528.87 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 23,966.49 (close)

Shanghai - Composite: Closed for a holiday

Euro/dollar: DOWN at $1.1534 from $1.1539 at 2100 GMT on Tuesday

Pound/dollar: DOWN at $1.3553 from $1.3629

Euro/pound: UNCHANGED at 85.10 pence

Dollar/yen: DOWN at 111.37 yen from 111.46 yen

Brent North Sea crude: DOWN 1.7 percent at $81.14 per barrel

West Texas Intermediate: DOWN 1.8 percent at $77.49

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