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Asian and European stocks sank Thursday and the dollar advanced after the US Federal Reserve indicated it could hike interest rates again this year and keep them elevated longer than feared as it struggles to bring inflation to heel.
With the world's number-one economy still in rude health and the labour market showing few signs of softening, central bank officials appeared confident they had enough room for further policy tightening without causing a recession, analysts said.
The Fed's much-anticipated meeting finished Wednesday with borrowing costs held at a two-decade high -- as expected -- but the board's "dot plot" guide to future rates pointing to another lift and just two cuts next year, instead of the four previously anticipated.
The hawkish tilt dealt a blow to sentiment among traders, who have feared more restrictive measures following a string of data showing that 11 hikes in 18 months were not having the desired impact on inflation, which is still well above the bank's two-percent target.
"We are prepared to raise rates further, if appropriate, and we intend to hold policy at a restrictive level until we're confident that inflation is moving sustainably toward our objective," Fed chief Jerome Powell told reporters after the decision.
All three main indexes on Wall Street ended sharply lower, with the Nasdaq losing more than one percent as tech firms took a hit owing to their susceptibility to higher borrowing costs.
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Asia followed suit. Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Mumbai, Jakarta, Singapore and Taipei all retreated.
London dropped ahead of the Bank of England's own policy decision later in the day, which comes after data showed a surprise dip in UK inflation in August. The reading added to optimism that the BoE could stand pat on rates, or make any hike its last of this cycle.
Paris and Frankfurt were also in the red.
Sweden's central bank hiked rates again, saying inflation was "still too high", while Switzerland stood pat but officials warned more tightening could be needed. Norway also announced another increase and suggested a further one was "likely".
Bank of Japan in spotlight
SPI Asset Management's Stephen Innes said while the Fed was "more self-assured that it can achieve a soft landing and that the economy can sustain higher rates for a longer period", traders wanted reassurance it can handle the tighter policy environment without significant pain.
"In the near term, there is a possibility of the opposite happening," he warned.
"Growth might soften in the fourth quarter due to factors such as the resumption of student loan repayments, the UAW (auto) strike, and a potential federal government shutdown.
"How temporary this could be or whether these events tip the economic scales to recession could be the roller-coaster ride from here to Christmas."
Bets on the Fed lifting rates again and holding them there for some time put further upward pressure on the dollar against its peers, hitting a fresh 10-month yen high above 148.
That has returned focus on the Bank of Japan ahead of its own meeting on Friday, with officials recently saying that they were keeping a close watch on forex markets, fuelling speculation they would intervene to protect the yen if it continued to weaken.
The BoJ gathering comes as speculation swirls that it is considering moving away from its long-term ultra-loose monetary policy and yield curve control, in which it controls the band in which government bond yields move.
However, Matt Simpson at City Index said it was "unlikely the BoJ will announce any change of policy (Friday) or soon for that matter".
"Although you never know for sure with this central bank," he added.
"The BoJ widened their YCC band recently, and whilst (governor Kazuo) Ueda prompted some excitement that the BoJ may hike rates before abandoning YCC control, he dismissed the possibility of it being this year."
Oil prices extended the week's losses on the prospect of higher US rates, while the stronger dollar made it more expensive for clients using other currencies.
The past few days' drop has pared a rally in the commodity seen since Russia and OPEC kingpin Saudi Arabia announced output cuts will last until the end of the year.
Key figures around 0810 GMT
Tokyo - Nikkei 225: DOWN 1.4 percent at 32,571.03 (close)
Hong Kong - Hang Seng Index: DOWN 1.3 percent at 17,655.41 (close)
Shanghai - Composite: DOWN 0.8 percent at 3,084.70 (close)
London - FTSE 100: DOWN 0.4 percent at 7,703.34
Dollar/yen: UP at 148.30 yen from 148.22 yen on Wednesday
Euro/dollar: DOWN at $1.0656 from $1.0664
Pound/dollar: DOWN at $1.2314 from $1.2342
Euro/pound: UP at 86.55 pence from 86.35 pence
West Texas Intermediate: DOWN 1.1 percent at $88.67 per barrel
Brent North Sea crude: DOWN 1.1 percent at $92.53 per barrel
New York - Dow: DOWN 0.2 percent at 34,440.88 (close)
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