Interest Rate Jitters Hit US, European Markets

US stock indexes closed sharply lower on Thursday in a broad sell-off as recession fears grew following moves by central banks around the globe to stamp out rising inflation after the Federal Reserve's largest rate hike since 1994.

The S&P 500 suffered its sixth decline in seven sessions. Stocks had rallied on Wednesday as the Fed delivered an aggressive 75 basis point rate hike, as expected, to help the index snap its longest daily losing streak since early January.

The S&P 500 lost 3.3 percent to 3,666, while the Nasdaq Composite lost 4.1 percent to 10,646. The Dow Jones Industrial Average fell 2.4 percent to 29,927.

Rate hikes on Thursday from the central banks of Switzerland and Britain reignited fears that attempts by central banks to curb inflation could lead to sharply slower growth worldwide or a recession.

"That is what people reassessing today – what is the probability of a potential recession and will corporate profits come in where analysts estimates are or will those get taken down," said Tom Hainlin, global investment strategist at US Bank Wealth Management's Ascent Private Wealth Group in Minneapolis.

"The Swiss came out and surprised everybody today and said we are less worried about the strength of our currency and more worried about inflation."

European stock markets closed at their lowest level in three months, with London and Frankfurt shedding more than three percent and Paris falling by 2.4 percent.

Each of the 11 major S&P sectors were lower, although the defensive consumer staples was outperforming the broader market as names like WalMart, General Mills and Procter & Gamble were among the few S&P 500 components to advance in the session. Growth stocks were hit hard with the S&P growth index down about 4%.

Hopes the Fed could engineer a soft economic landing are fading and Wells Fargo analysts now see a greater than 50 percent chance of a recession. Other banks that have warned of rising recession risks include Deutsche Bank and Morgan Stanley. (Reuters, AFP)