European stocks down on Fed worries, oil forecast

European stock markets fell further Friday, with investors focused on next week's US interest rate decision and oil company shares sliding on a forecast for crude prices to halve yet again.

London's benchmark FTSE 100 index shed 0.52 percent to stand at 6,123.96 points in afternoon trading.

In the eurozone, Frankfurt's DAX 30 dropped 0.75 percent to 10,133.93 points and the CAC 40 in Paris fell 0.69 percent to 4,565.04, extending Thursday's losses after a recent rally.

The euro edged up to $1.1287 from $1.1275 late on Thursday in New York.

"Risk appetite has certainly improved this week although we're still seeing investors hold back a little," said Craig Erlam, senior market analyst at Oanda trading group.

"One of the key risks all along has been the Federal Reserve and whether it will raise interest rates at the meeting next week."

Asian stock markets mostly fell Friday but ended a volatile week in relative calm after China unveiled a series of steps to shore up its economy and reassure investors, although fears of a US interest rate hike kept nerves on edge.

Global investors are nervously waiting for the US Federal Reserve policy meeting on September 16-17, with uncertainty over whether it will lift interest rates for the first time in nine years or hold fire owing to the recent market turmoil.

A hike in borrowing costs would likely hinder investment possibilities and also fan a flight of capital back to the United States in search of better returns, to the detriment of emerging markets.

- Fed dilemma -

Investors were digesting the impact of US producer price data released Friday on the Fed's decision.

While prices held steady in August from July, analysts had been expecting a dip of 0.1 percent due to the effect of falling energy prices.

Nevertheless analysts said the data showed there is little pressure for a quick return to the Fed's target level of inflation.

"The Fed has got a bit of a tough dilemma," David Sloan, a senior economist at 4Cast Inc. in New York was quoted as saying by Bloomberg News.

"The labour market is getting close to full employment and growth is quite solid but inflation is clearly below the Fed?s target. It?s a close call? on whether the central bank will hike rates next week, he added.

In Europe, official data published Friday showed Germany's inflation rate at just 0.2 percent in August, still way below the level of just under 2.0 percent that the European Central Bank targets.

The economic slowdown in China and depressed oil prices have pushed inflation expectations in the eurozone back down.

US stocks opened lower Friday with petroleum-linked equities especially weak due to a sharp drop in oil prices.

The Dow Jones Industrial Average shed 0.46 percent to 75.05 points in the first five minutes of trading.

The broad-based S&P 500 gave up 0.50 percent to 1,942.53, while the tech-rich Nasdaq Composite Index fell 0.52 percent to 4,771.25.

US oil prices were down almost three percent after Goldman Sachs slashed its price forecast for the commodity amid a global oversupply, saying it could drop to $20 per barrel, less than half of its current level.

Dow member ExxonMobil fell 0.3 percent, while EOG Resources lost 1.7 percent and Apache tumbled 2.2 percent.

In London, shares in BP dipped 0.24 percent to 334.50 pence and Shell's A share gave up 0.25 percent to 1,610 pence.

In Paris, shares in Total bucked the trend to pick up 0.24 percent to 40.04.

The International Energy Agency also said Saudi Arabia's policy of protecting its market share will end up squeezing high-cost producers like US shale drillers who next year may face the biggest drop in output in nearly a quarter century.

However cheap fuel is also hooking consumers, with oil demand growth set to hit a five-year high this year, the IEA added.

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