In This Article:
* European stocks follow falls in Asian, U.S. markets
* Dollar hits highest since June 2020, Treasury 2-year gains
* Oil prices back above $90 a barrel
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Jan 27 (Reuters) - Stocks fell on Thursday, U.S. two-year bond yields rocketed to 23-month highs and the dollar busted out of its recent range after the Federal Reserve stuck to plans for an interest rate rise in March and Chair Jerome Powell warned about inflation.
The Euro STOXX fell 0.19% while Germany's DAX lost 0.52%.
Wall Street had plunged on Wednesday, reversing earlier gains after Powell's press conference, and looked set to open slightly lower on Thursday.
Stocks -- which have fallen sharply from record highs in 2022 -- were way off the day's lows, however, and selling was not nearly as aggressive as in recent sessions.
In Asia, shares slumped to their lowest in nearly 15 months. Britain's energy and bank-heavy FTSE 100 bucked the trend with a 0.3% gain.
Investors globally have dumped riskier assets in 2022 and sought safety as they brace for the end of nearly two years of exceptionally cheap and plentiful cash.
"What cheap money has done is provide a safety blanket from bad news," said Jane Foley, an analyst at Rabobank.
"But as this comfort blanket is pulled away, investors will be more exposed and I suspect this will create a more volatile environment for asset prices."
In its latest policy update on Wednesday, the Fed indicated it was likely to raise U.S. interest rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.
But in a follow-up news conference Powell warned that inflation remained above the Fed's long-run goal and supply chain issues may be more persistent than previously thought.
Adding to investors' nervousness are rising concerns over political tension between Russia and Ukraine. That has exacerbated worries over tight energy market supply, keeping oil prices elevated at multi-year highs.
Fed funds futures showed traders pricing in as many as five increases by December, after previously fully pricing for four.
DOLLAR BREAKS HIGHER
Expectations of Fed tightening sent the policy-sensitive U.S. two-year yield to 1.208%, levels last reached in February 2020. The benchmark 10-year yield slipped slightly to 1.835% having hit a high of 1.88% on Wednesday.
The spread between the 10 and two-year bond yields fell to its narrowest since late 2020 as investors priced in a faster pace of rate rises in the medium-term.