European, Asian stocks sink as higher US inflation dampens hopes for more Fed rate cuts

Stock markets in Europe and Asia slid Monday after signs of accelerating inflation in the U.S. dampened hopes that the Federal Reserve will cut interest rates further to shore up the struggling American economy.

Britain's benchmark FTSE-100 dropped 1.9 percent to 6,277.80, Germany's DAX Index slipped 1.6 percent to 7,825.44 and France's CAC-40 fell 1.6 percent to 5,514.88.

"Worries over strong inflation data in the U.S., which came out on Friday, shows investors are now seeing further rate cuts from the Fed as less and less likely, and this has pushed global equities lower," said CMC Markets trader Nathan Miller.

Benchmark indices in five Asian markets _ Australia, Hong Kong, Singapore, India and Taiwan _ sank more than 3 percent. Asian investors pay close attention to the U.S. economy because it is a major export market.

Wall Street extended last week's losses as investors remained concerned about flagging growth and rising prices. The Dow Jones industrial average fell 0.5 percent to 13,271.98. Broader stock indicators also declined.

Investors dumped stocks after Wall Street tumbled Friday following figures that showed U.S. consumer prices rose 0.8 percent in November, the largest increase in more than two years. That raised questions about the Fed's options for supporting the economy, which has been buffeted by a credit crisis and housing slump, by lowering interest rates.

Some investors were also disappointed that the Fed cut interest rates by just a quarter point last week instead of the more aggressive half-point that some had hoped for.

Hong Kong's benchmark Hang Seng index sank 3.5 percent to 26,596.58 points, its lowest since Nov. 23. All 43 blue chips in the index fell, and Hong Kong property stocks were hit hard. Hong Kong's currency is pegged to the U.S. dollar and interest rate moves by the Fed are usually matched by Hong Kong's monetary authority and local banks.

"Only if (U.S.) Christmas sales data are exceptionally strong may the Hang Seng Index end the year above its current level," said Philip Chan, head of research at CAF Securities Ltd.

Japan's Nikkei 225 index declined 1.7 percent to 15,249.79 points, bringing its four-day loss to 5 percent. Australia's benchmark S&P/ASX 200 index plunged 3.5 percent to a three-month low, while Taiwan's key stock index dropped 3.5 percent to a nine-month low.

In mainland China, stocks also fell after a top central bank official warned against excess real estate lending, renewing fears of further controls on bank loans. The benchmark Shanghai Composite Index lost 2.6 percent to 4,876.8.