Portugal Colonial - European stocks drop as oil spike fans inflation woes

Oil prices spiked Tuesday on output announcements from key OPEC+ producers Russia and Saudi Arabia, which are seeking higher prices to boost their revenues. The market receded Wednesday.

Buoyant crude prices complicate efforts by global central banks to tame stubbornly-high inflation, dampening expectations of a pause in tighter monetary policy.

US interest rates are already at a two-decade high and some analysts warn that further increases could risk tipping the world's top economy into recession.

- Rates higher for longer? -

"The extension of output cuts by Russia and Saudi Arabia through to the end of the year... may force the likes of the Federal Reserve to keep interest rates higher for longer. Markets are reacting negatively," noted AJ Bell investment director Russ Mould.

The dollar was mixed against major peers after rallying Tuesday on new monetary-tightening bets.

Brent North Sea crude had struck $90 per barrel Tuesday for the first time this year after Moscow said it would extend oil export cuts of 300,000 barrels per day and Riyadh added it would maintain its production cut of 1 million bpd.

"OPEC+ is... triggering fresh and increasing concerns about rising global inflation -- which was just beginning to ease -- meaning central banks could possibly push higher-for-longer interest rates," added Nigel Green, head of financial advisory firm deVere Group.

"Restricted oil supply leads to higher oil prices, which, in turn, can contribute to higher fuel prices for consumers and businesses, putting upward pressure on overall inflation."

Elsewhere on Wednesday, the pound dipped before comments due from Bank of England governor Andrew Bailey to British lawmakers, as central bankers remain on guard over elevated consumer prices.

The European Central Bank next week announces its latest monetary policy decision, followed by the BoE and the US Federal Reserve one week later.

London investors set aside survey data Wednesday showing modest August growth in the UK construction sector.

Traders kept tabs also on Tokyo after the dollar jumped to a 10-month peak against the yen on increased US rate-hike expectations, and above the levels that led officials to step in with support last year.

Japan's vice finance minister for international affairs Masato Kanda made a verbal intervention, saying authorities were ready to take action when needed.

The yen has bounced back but remains under pressure, with the Bank of Japan's ultra-loose monetary policy, notably no rate hikes, expected to keep it from rallying much higher.

Asian stock markets faced initial hefty losses but finished on a mixed note on Wednesday. Wall Street ended in the red Tuesday.

- Key figures around 1100 GMT -

London - FTSE 100: DOWN 0.6 percent at 7,390.10 points

Frankfurt - DAX: DOWN 0.4 percent at 15,715.55

Paris - CAC 40: DOWN 0.7 percent at 7,203.25

EURO STOXX 50: DOWN 0.7 percent at 4,240.39

Tokyo - Nikkei 225: UP 0.6 percent at 33,241.02 (close)

Hong Kong - Hang Seng Index: FLAT at 18,449.98 (close)

Shanghai - Composite: UP 0.1 percent at 3,158.08 (close)

New York - Dow: DOWN 0.6 percent at 34,641.97 (close)

Euro/dollar: UP at $1.0739 from $1.0722 on Tuesday

Dollar/yen: DOWN at 147.38 yen from 147.72 yen

Pound/dollar: DOWN at $1.2550 from $1.2564

Euro/pound: UP at 85.58 pence from 85.33 pence

West Texas Intermediate: DOWN 0.4 percent at $86.38 per barrel

Brent North Sea crude: DOWN 0.4 percent at $89.64 per barrel

E.Borba--PC