London (AFP) - Surging inflation in Europe dragged down the continent’s stock markets on Wednesday while the US reported that prices of essentials were rising slower than expected, reducing the likelihood of another interest rate hike and helping Wall Street stocks climb.

The US Federal Reserve’s preferred inflation gauge stood at 3.4 percent year-on-year in August, unchanged from the month before after a revision to the July figure, government data showed.

But the core reading that excludes volatile food and energy prices came in at 3.0 percent, less than the 3.3 percent expected by economists.

“Expectations of a Fed rate hike in October have dropped sharply,” said Kathleen Brooks, research director at XTB.

“The market now sees a 37 percent chance of a hike from the Fed next month, down from a 70 percent chance last week.”

The Fed raised rates earlier this month for the first time since 2023 as inflation remains stubbornly above its two percent target. Investors had worried another acceleration in inflation could force policymakers to raise rates again.

The US dollar lost ground after the data was published, while yields on US government bonds dropped.

Meanwhile Europe’s main stock markets closed lower after France, Germany and Italy revealed that prices in their countries were surging, particularly at the petrol pumps.

“This morning’s economic releases from the eurozone have done little to improve the outlook, with a combination of rising inflation and weakening sentiment reinforcing concerns about stagflation,” said Forex.com analyst Fawad Razaqzada.

London’s FTSE 100 also ended the day lower after an earlier rally following data showed the UK economy grew more than initially estimated in the second quarter.

London-listed mining firms had risen thanks to data out of China – a huge consumer of industrial metals – that showed the country’s factory activity grew this month for the first time since June.

That news also gave a boost to the Hong Kong and Shanghai stock markets, which edged up slightly at the close along with Tokyo.

Oil prices jumped on Wednesday on reports of fresh damage to Saudi energy infrastructure.

“Reports of a Houthi attack on a Saudi oil processing facility have halted the selloff in oil prices, which had gathered pace yesterday on reports of a much-improved supply situation,” said Chris Beauchamp, chief market analyst at online trading platform IG.

Benchmark international contract Brent remains above $100 per barrel, fuelling global inflation and multi-decade highs in bond yields.

- Key figures at around 1530 GMT -

New York - Dow: UP less 0.1 percent at 51,389.69 points

New York - S&P 500: UP 0.6 percent at 7,716.15

New York - Nasdaq Composite: UP 1.0 percent at 27,061.20

London - FTSE 100: DOWN 0.3 percent at 10,606.00 (close)

Paris - CAC 40: DOWN 1.0 percent at 7,957.51 (close)

Frankfurt - DAX: DOWN 0.8 percent at 25,199.19 (close)

Tokyo - Nikkei 225: UP 1.9 percent at 66,753.72 (close)

Hong Kong - Hang Seng Index: UP 0.4 percent at 24,613.27 (close)

Shanghai - Composite: UP 0.3 percent at 3,842.19 (close)

West Texas Intermediate: UP 2.6 percent at $91.73 per barrel

Brent North Sea Crude: UP 1.1 percent at $103.73 per barrel

Dollar/yen: DOWN at 157.16 yen from 157.32 yen on Tuesday

Euro/dollar: UP at $1.1360 from $1.1339

Pound/dollar: UP at $1.3276 from $1.3204

Euro/pound: DOWN at 85.58 pence from 86.00 pence

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