Chinese inflation surprise weighs on markets

LONDON Higher than expected Chinese inflation figures on Thursday gave investors a chance to cash in on recent gains, which have sent some of the world's stock indexes up to record highs.

Government figures showed China's consumer price index rose 2.4 percent in the year to April, up from 2.1 percent the previous month and ahead of expectations of a more modest advance to 2.2 percent.

"Sentiment has soured somewhat in Asia after that fractionally higher than expected Chinese CPI reading as this may prompt Beijing to attempt to cool demand," said Fawad Razaqzada, market strategist at GFT Markets.

"Should this happen then the consequences will likely be played out on a global basis, but given the overshoot was so limited, the caution may be somewhat exaggerated by the fact markets are simply looking a bit toppy at these levels," he added.

In Europe, Germany's DAX, which has set a series of record highs, was down 0.2 percent at 8,238. The CAC-40 in France was 1.1 percent lower at 3,915 while the FTSE 100 index of leading British shares fell 0.1 percent to 6,578 ahead of the monthly Bank of England policy decision -- no change in interest rates or its stimulus program are expected.

Trading in many parts of Europe was light as many countries were on a public holiday, though markets remained open.

U.S. shares were also poised for a modest retreat after days of closing record highs -- both Dow futures and the broader S&P 500 futures were down 0.1 percent. There's little economic and corporate news later, meaning that weekly jobless claims figures may be the focus of attention. Last week's figures showed claims down at a five-year low. A modest uptick to 335,000 is expected.

Currency markets were fairly subdued too, with the euro 0.1 percent lower at $1.3142.

Many reasons have been cited for the recent strength of stock markets around the world, including hopes over the U.S. economy, a seeming easing in Europe's debt crisis and an aggressive new monetary policy from the Bank of Japan.

Earlier, Japan's Nikkei 225 index dropped 0.7 percent to 14,191.48 - a modest retreat after a strong run that's sent the Nikkei up to five-year highs.

Another aspect of the Bank of Japan's massive monetary stimulus has been to weaken the yen dramatically. That feeds through into stocks as a lower currency makes the country's exports relatively cheaper. On Thursday, the dollar was 0.2 percent lower at 98.72 yen.

Elsewhere in Asia, Hong Kong's Hang Seng fell 0.1 percent to 23,211.48 after the Chinese inflation figures. However, mainland Chinese shares were mixed with the Shanghai Composite Index down 0.6 percent to 2,232.97 while the smaller Shenzhen Composite Index gained 0.2 percent to 967.69.

South Korea's Kospi index was also in focus as it jumped 1.2 percent to 1,979.45 after the Bank of Korea lowered its benchmark interest rate for the first time in seven months. In announcing that it was lowering the rate by a quarter percentage point to 2.5 percent, the Bank of Korea became the latest central bank to take steps to boost flagging economic growth.

Oil prices drifted lower alongside equities following recent strong gains - the benchmark New York contract was down 54 cents at $96.08 a barrel.