The dollar recovered some of the losses sparked by the US inflation print

London (AFP) - Major stock markets dropped Thursday as investors weighed fresh US inflation data, the financial health of a regional bank and another UK interest rate hike.

Wall Street’s main indices were all in the red through morning trading, after the previous day’s rally.

Most European indices closed down, including the FTSE 100 in London which dipped into the red after earlier gains.

Shares in US lender PacWest plunged almost 29 percent in early trading after it indicated a fall in deposits, rekindling fears over the stability of the banking sector.

“This came as a reminder that we’re not out of the woods yet on issues with smaller banks,” said analyst Alex Coffey of Charles Schwab.

“While a deposit decline at one bank doesn’t necessarily signal broader problems, the market is hypersensitive to anything affecting this sector.”

Disney was also dragging on markets after the entertainment giant said subscribers to Disney Plus had fallen for the second straight quarter, as it competes with streaming channel Netflix for viewers.

“US stocks are lower after some not so magical results from Disney and as banking jitters returned,” said Edward Moya, senior market analyst at OANDA.

“Banking stress won’t be going away anytime soon.”

- Fed ponders rate hike -

Traders also assessed data showing US wholesale prices had risen modestly in April, giving the Federal Reserve another point of reference as it weighs the prospect of another rate hike next month.

The Fed has raised interest rates 10 times in a row in a bid to control rising prices, and hinted that any future decision on an increase will be data-dependent going forward.

US data released Thursday showed that producer prices rose 0.2 percent last month, slightly below expectations.

It comes a day after data showed US consumer prices had dipped further, though only marginally, from 5.0 percent in March to 4.9 percent in April.

The US consumer price index reading was the lowest in two years, slightly below what had been expected.

But the April figure was far above the Fed’s stated goal of two percent, which some analysts said meant it was unlikely officials would consider cutting rates at the end of the year, as some investors had been betting on.

This helped to support the dollar against major rivals Thursday.

Investors are also tracking the political battle over raising the US debt ceiling. Democrats and Republicans have so far failed to reach a deal just weeks before the country runs out of cash to pay its bills.

- Bank of England lifts rates -

In Britain, the Bank of England lifted its interest rate by a quarter point to 4.5 percent on Thursday – the highest level since the 2008 financial crisis as inflation there remains above 10 percent.

“The Bank of England is clearly concerned about the stickiness of UK inflation,” said Shanti Kelemen, chief investment officer at M&G Wealth.

“Higher interest rates will eventually reduce demand for services, but it takes time for the impact to be translated to the economy.”

While raising its rate for a 12th time in a row, the BoE upgraded its British GDP forecast, adding there would be only a small impact from recent turmoil in the commercial banking sector.

BoE governor Andrew Bailey said the UK would this year experience “modest but positive economic growth and a much smaller increase in unemployment”, after predicting a recession six months ago.

Thursday trading was also subdued in Asia after more data from China suggesting a slow recovery after lifting pandemic curbs.

Producer prices in the world’s second-biggest economy fell for the seventh consecutive month, due to sluggish domestic demand and lower commodity costs.

The disappointing Chinese data helped to drive down oil prices, analysts said, due to worries over future demand.

- Key figures around 1540 GMT -

New York - Dow: DOWN 0.8 percent at 33,273.76 points

EURO STOXX 50: FLAT at 4,307.51

London - FTSE 100: DOWN 0.1 percent at 7,730.58 (close)

Frankfurt - DAX: DOWN 0.4 percent at 15,834.91 (close)

Paris - CAC 40: UP 0.3 percent at 7,381.78 (close)

Tokyo - Nikkei 225: FLAT at 29,126.72 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 19,743.79 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,309.55 (close)

Euro/dollar: DOWN at $1.0918 from $1.0985 on Wednesday

Pound/dollar: DOWN at $1.2517 from $1.2627

Dollar/yen: UP at 134.36 yen from 134.34 yen

Euro/pound: UP at 87.21 pence from 86.98 pence

Brent North Sea crude: DOWN 0.8 percent at $75.83 per barrel

West Texas Intermediate: DOWN 1.1 percent at $71.78 per barrel