LONDON, June 8: Equity markets in Europe, Asia and the US were hit by a fresh bout of aggressive selling on Thursday linked to concerns that rising interest rates worldwide will undermine economic growth, analysts said.

The major European indices closed more than 2 per cent lower, Japanese shares nosedived by more than 3 per cent, their biggest one-day loss of the year, and Wall Street shed more than 1.5 per cent.

Emerging markets were particularly badly hit, seen as the result of a strategy by investors to reduce their exposure to risk, with Indian share prices down nearly 5 per cent and Turkish shares down 3.7 per cent.

Commenting on the recent sharp falls of global stock markets, analysts at insurance company AGF said: “This increased volatility is the result of uncertainty about the attitude of central banks arising from fear about resurgent inflation.”

Over the past month, world stock markets have sunk by some 10 per cent, in many cases wiping out all of their gains in 2006.

Investors are concerned about a scenario in which central banks will be forced to raise their interest rates to combat inflation and risk choking off global economic growth — something of particular concern for the US economy.

Inflationary pressures are on the rise because of high oil and raw material prices coupled with high levels of liquidity in financial markets.

As well as reducing the funds available for investments in the stock market, rising interest rates reduce consumption by households and investment by companies, thereby curbing economic activity and upward pressure on prices.

On Thursday, the European Central Bank increased its interest rates by 0.25 per cent to 2.75 per cent and central banks in South Africa, India and South Korea all opted for similar action.—AFP