World stocks down as Fed's next policy move mulled

A quotation board displays the yen exchange rate against the U.S. dollar on Sept. 11, 2014, in Tokyo, Japan.

KAZUHIRO NOGI/AFP/Getty Images

SEOUL, South Korea - Asian stocks erased gains and European markets were lower Thursday as investors tried to second guess the Federal Reserve's thinking on the timing of an interest rate hike. Japanese stocks rose as the yen resumed its fall against the U.S. dollar.

European markets drifted lower in early trading. Britain's FTSE 100 fell 0.2 percent to 6,819.10 and France's CAC 40 dropped 0.2 percent to 4,440.33. Germany's DAX shed 0.2 percent to 9,683.01. Wall Street was headed for a weak start. Both S&P 500 and Dow Jones futures fell 0.3 percent.

Japan's Nikkei 225 rose 0.8 percent to 15,909.20 but most other benchmarks closed lower. Hong Kong's Hang Seng dipped 0.2 percent to 24,662.64 and China's Shanghai Composite finished 0.3 percent lower at 2,311.68 after rising about 1 percent earlier in the day. South Korea's Kospi lost 0.7 percent to 2,034.16 in its first trading day of the week after holidays. Australia's S&P/ASX 200 fell 0.5 percent to 5,546.10.

Two San Francisco Fed economists pointed out in a paper earlier this week the gap between what the public expects about the Fed's future policy moves and what the board members expect. The paper said the public expects a "more accommodative" policy, meaning low interest rates for longer, than board members. The paper further gave weight to the view that the Fed's first rate hike since the 2008 financial crisis is closer than some expect. A report on the U.S. unemployment claims later on Thursday and another on U.S. retail sales on Friday could give investors a better read on the world's largest economy.

"There is a bigger possibility that the FOMC's forward guidance (about higher interest rates) would change," Chun Jung-hun, an analyst at Kiwoom Securities in Seoul, said in a report. "Market participants cannot help reacting sensitively to possible changes in the Fed's statement. There is a more possibility that the phrase 'considerable time' would be deleted from the statement."

President Barack Obama authorized U.S. airstrikes inside Syria to root out Islamic State extremists but markets' reactions are remained to be seen. Obama laid out his plan to "degrade and ultimately destroy" the Islamic State militants in Iraq and Syria, including the authorization of U.S. airstrikes within Syria. The U.S. already has launched about 150 airstrikes on Islamic State targets inside Iraq, at the invitation of the Iraqi government.

Stocks in mainland China gained ground earlier in the day after the country's monthly consumer price index showed a lower inflation rate. Consumer prices rose 2 percent last month from over a year earlier, compared with a 2.3 percent rise in July. Subdued inflation suggests the domestic economy is muted but also gives policymakers headroom to maintain easy access to credit and possibly introduce new stimulus measures.

The dollar continued to gain against the yen and other Asian currencies on expectations the Federal Reserve will raise interest rates from ultra-low levels in coming months because of steady improvement in the U.S. economy. Europe and Japan by contrast are not expected to let up on stimulatory monetary policy. Credit Agricole analysts said in a report that the dollar will rise to 108 yen by the end of this year, even without further policy easing in Japan. It said the yen will be driven higher by rate hike expectations in the U.S.

Benchmark U.S. crude for October delivery was down 23 cents to $91.43 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.08 to settle at $91.67 on Wednesday. Crude prices fell after the Organization for Petroleum Exporting Countries revised down its growth forecasts for global crude oil demand in a monthly report released Wednesday.

The dollar rose to 106.97 yen from 106.82 yen late Wednesday. The euro rose to $1.2927 from $1.2921.