Investors are keeping tabs on Washington, where a standoff between lawmakers threatens to cause a government shutdown

New York (AFP) - Global stock markets fell Tuesday as investors fixated on the risk US interest rates will be kept elevated for a prolonged period, denting growth.

Most Asian and European bourses closed in the red, while all three major Wall Street indices finished the day off more than one percent.

“The relief rally was not meant to be,” said Oanda’s Edward Moya, referring to Monday’s gains in US equities that snapped four straight declines.

“The economy sure looks like it might break, and it could easily get a lot worse if the Fed needs to take rates much higher.”

US consumer confidence fell to 103 from 108.7 in August, according to the Conference Board. The report showed a bigger drop than expected, reflecting the drag from higher gasoline and food prices.

“Headwinds continue to mount in the form of a weakening labor market, depleting excess savings, struggling equity markets, and the lagged impacts of the Fed’s aggressive rate hike campaign,” said a note from Oxford Economics.

Markets have been on defense since last week’s Federal Reserve meeting, in which the central bank held interest rates steady but signaled the possibility of more hikes in 2023.

The concerns were compounded by the threat of a government shutdown in Washington

The haven dollar scored multi-month peaks against the pound and euro, as investors also flocked to safety. The Dollar Index hit its highest level since November before steadying.

Investors fear that keeping rates high for too long, or hiking them again, could tip economies into recession.

“Concerns over high interest rates lingering for longer causes nervousness,” noted Susannah Streeter, head of money and markets at stock broker Hargreaves Lansdown.

“Restrictive monetary policy in major economies, particularly the US, (reduces) appetite for goods and services, as consumers and companies keep their belts tightened,” she added.

Paris and Frankfurt closed down, following the lead from Tokyo, Shanghai and Hong Kong.

London ended flat after trading up most of the day.

“Risk sentiment is morose due to Fed’s pledge to keep rates higher for longer, the stronger dollar is pressuring other major markets to the downside, as combined with rising oil prices, it threatens to boost inflation across the board,” said Swissquote Bank analyst Ipek Ozkardeskaya.

“The FTSE 100 is one interesting play as it lagged its technology-heavy peers earlier this year, and could come with a revenge if oil stocks continue to recover with the jump in oil prices,” she added.

- Key figures around 2040 GMT -

New York - Dow: DOWN 1.1 percent at 33,618.88 (close)

New York - S&P 500: DOWN 1.5 percent at 4,273.53 (close)

New York - Nasdaq: DOWN 1.6 percent at 13,063.61 (close)

London - FTSE 100: FLAT at 7,625.72 (close)

Frankfurt - DAX: DOWN 1.0 percent at 15,255.87 (close)

Paris - CAC 40: DOWN 0.7 percent at 7,074.02 (close)

EURO STOXX 50: DOWN 0.9 percent at 4,129.18 (close)

Tokyo - Nikkei 225: DOWN 1.1 percent at 32,315.05 (close)

Hong Kong - Hang Seng Index: DOWN 1.5 percent at 17,466.90 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,102.27 (close)

Euro/dollar: DOWN at $1.0575 from $1.0593 on Monday

Pound/dollar: DOWN at $1.2158 from $1.2211

Dollar/yen: UP at 149.08 yen from 148.88 yen

Euro/pound: UP at 86.96 pence from 86.74 pence

Brent North Sea crude: UP 0.7 percent at $93.96 per barrel

West Texas Intermediate: UP 0.8 percent at $90.39 per barrel