Stock markets diverge as dealers refocus on rates outlook

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Equity markets were mixed Thursday as central bank warnings that interest rates would rise further to counter inflation offset hopes the US economy could avoid a recession.

Worries over the outlook for China additionally weighed on sentiment in Hong Kong and Shanghai after mainland officials failed to provide any details on plans to boost growth, despite pledges of help.

London's FTSE 100 retreated in midday deals, while the main eurozone indices gained.

"The FTSE 100 was on the back foot... as central bankers used a conference in Portugal to ram home the message that more rate hikes could be coming and rates could stay higher for longer than the market thinks," noted AJ Bell investment director Russ Mould.

"Monetary policymakers must balance the need to show their commitment to fighting inflation, while also having some awareness that there will be a lag before their actions take full effect in the economy."

Fed boss Jerome Powell on Thursday reiterated his warning that two more US rate hikes were probably necessary by the end of the year as there was still "a long way to go" to bring inflation down to the Fed's two-percent target.

A day earlier, he told an annual gathering of central bankers in Sintra, Portugal, that "policy hasn't been restrictive enough for long enough".

He added policymakers had not decided whether to go for two successive increases or at alternate meetings and warned rates could stay high for some time as the board tries to cut inflation down from the current four percent to two percent.

"We will be restrictive as long as we need to be," he said.

Powell's comments came after European Central Bank chief Christine Lagarde said eurozone borrowing costs would continue to rise.

Sweden on Thursday hiked its key interest rate to 3.75 percent, the highest level in nearly 15 years.

- Key figures around 1100 GMT -