Asian, European markets on back foot over growing US rate worries

HONG KONG, China — Markets fell further Tuesday as investors grew increasingly fearful about another possible US interest rate hike and the prospect they will be kept elevated for some time to combat persistent inflation.

A small bounce on Wall Street was brushed off in early Asian trade, with a spike in US Treasury yields to fresh 16-year highs pushing the dollar even higher and reviving worries the world's top economy could slip into recession.

The concerns were compounded by the threat of a government shutdown in Washington as lawmakers struggled to iron out their differences on spending, leading to a warning that it could affect the US credit rating.

A surge in oil prices in recent months has fanned fears that central banks' attempts to bring inflation down could be thrown off track after more than a year of tightening.

The US Federal Reserve last week indicated it could hike borrowing costs again before the year's end owing to a still-strong labour market and resilient economic data, dealing a blow to many dealers who had been hoping July's hike was the last.

Decision-makers also hinted rates might have to be kept at more than two-decade peaks for some time.

"Rates will stay high," said Wei Li and other analysts at the BlackRock Investment Institute, adding that Treasury yields could go even higher.

"Rising long-term bond yields show markets are adjusting to risks in the new regime of greater macro and market volatility."

National Australia Bank's Tapas Strickland added that "the higher for longer view remains the prevailing theme" from the Fed meeting.

He said Fed Chicago boss Austan Goolsbee warned that not bringing inflation under control was a major risk to the economy but that the conversation would soon turn