LONDON, Dec 17: World stock markets slumped on Monday on worries that resurgent US inflation would reduce the likelihood of another US interest rate cut to shield the economy from a credit crunch, dealers said.

European and Asian shares sank into the red with losses of up to 3.5 per cent as investors took their cue from Wall Street’s sell-off on Friday in the wake of unexpectedly strong inflation figures.

Investors took fright following news that US consumer prices jumped 0.8 per cent in November. On a 12-month basis, inflation hit 4.3 per cent, the fastest since June 2006.

Higher inflation in the US will reduce the scope for more interest rate cuts. That’s why investors are not so happy, said Francis Lun, general manager at Fulbright Securities.

Nearing the half-way stage of European trade Monday, London’s FTSE 100 index of leading shares was down 1.23 per cent to 6,318.30 points.

Frankfurt’s DAX 30 slid 1.30 per cent to 7,845.24 points and in Paris the CAC 40 shed 1.39 per cent to 5,527.43.

The market fluctuated sharply as sentiment turned really fragile.”New York’s Dow Jones index tumbled 1.32 per cent on Friday in a volatile session as the price data raised fears of stagflation” -- a combination of slower growth and stubborn inflation pressures.

Last week the US central bank trimmed its short-term borrowing rate by 25 basis points to 4.25 per cent in an effort to shore up economic activity but now markets are unsure whether to expect a further easing of monetary policy.

Investors are also awaiting the release of fourth-quarter earning reports later this week by US investment banks Goldman Sachs, Morgan Stanley and Bear Stearns amid fears of further subprime home loan-related losses.

With some forecasts of a 2008 slowdown, some investors are trying to guess the extent of it and there’s also the realisation that the plan by central banks to inject liquidity isn’t necessarily going to be enough to address the credit crunch, said Henk Potts of Barclays Wealth.—AFP