Shares struggle after hot UK inflation, New Zealand rate hike



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* MSCI World index flat, S&P futures down 0.7%

* UK consumer price inflation tops 10%

* New Zealand hikes rates by 50 bps

* U.S. dollar edges up before Fed minutes

By Danilo Masoni

Aug 17 (Reuters) - World shares struggled and oil prices fell on Wednesday as the UK's highest inflation since 1982 and a rate hike in New Zealand reminded investors of the challenges facing the global economy.

MSCI's benchmark for global stocks .MIWD00000PUS came off initial highs and by 1055 GMT it was barely changed, signalling that a bounce started in July was running out of steam.

European shares .STOXX fell 0.3%, while the MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.1%, off earlier highs.

Wall Street looked set for a weaker start, with S&P 500 ESv1 futures down 0.7% after strong gains on Tuesday following stronger-than-expected results from Walmart and Home Depot which bolstered optimistic views on the health of consumers.

But a bigger than expected jump in British consumer price inflation to 10.1% in July highlighted growing pressures on households and helped cement expectations of another 50 basis point (bps) rate hike at the Bank of England's next meeting.

After an initial spike on the data, sterling GBP=D3 pared some gains and was little changed against the dollar, while UK two-year bond yields GB2YT=RR surged to their highest level in almost 14 years.

"Higher inflation should trigger a more aggressive monetary policy response from the Bank of England - a bullish signal for sterling," said Matthew Ryan, Head of Market Strategy at Ebury.

"On the other hand ... higher prices present a clear downside risk to economic activity, and raise the possibility of a potentially prolonged UK recession, which is clearly bearish for GBP."

UK two-year yields, which are sensitive to rate hike expectations, rose above 10-year yields GB2GB10=RR , marking an inversion of the yield curve that many investors say is a harbinger of a major economic slowdown.

New Zealand shares .NZ50 were flat. After an initial spike the kiwi dollar NZD=D3 turned negative after the country's central bank announced a fourth consecutive 50 bps rate hike without giving hints of slowing down.

The hike was in line with forecasts, but Imre Speizer, head of NZ market strategy at Westpac, said the tone of RBNZ's statement was more hawkish than expected.

"Clearly they're a bit more worried about wage inflation and a very tight labour market, that's been a big recent development," Speizer said.

In foreign exchange markets, the dollar index =USD gained 0.1% to 106.59 ahead of the release of minutes from the Federal Reserve's latest meeting which investors will scrutinise for more clues on its policy tightening outlook.

The index, which tracks the greenback against six main peers, has recovered most of the ground it lost last week after a cooler-than-expected U.S. inflation reading but remains well off its mid-July top.

In Europe, yields rose as the UK inflation data shifted investors' focus back to potential further monetary tightening in the euro area. German two-year bond yields rose 13 bps to 0.714%, their highest since July 21. DE2YT=RR

Ten-year Treasury yields US10YT=RR rose 4 bps to 2.865%.

Oil hit a six-month low after a brief rally as concerns about the prospect of a global recession overshadowed a report showing lower U.S. crude and gasoline stocks.

Brent crude LCOc1 was down 0.4% at $92 a barrel while U.S. West Texas Intermediate crude CLc1 was down 0.1% at $86.4.

Spot gold XAU= traded in a narrow range and was last down around 0.3% at $1,771 an ounce.



World FX rates YTD Link
Global asset performance Link



Reporting by Danilo Masoni and Sam Byford in Tokyo; Editing by
Nick Macfie and Catherine Evans



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