Concerns about Credit Suisse have hammered global markets

London (AFP) - Stock markets wobbled on Thursday after the ECB went ahead with a big interest rate hike despite fears of a banking crisis.

Earlier gains in European shares on relief that troubled banking giant Credit Suisse had secured a financial lifeline quickly evaporated after the announcement.

Analysts had seen a strong likelihood that the European Central Bank would reduce the amount of its rate hike, or even pause it over fears about the health of Credit Suisse and the wider banking system following the implosions of two US lenders.

But the central bank raised its main rates by half a percentage point, as it had previously pledged to do.

It did however drop a reference, used in previous statements, to the need to raise rates “significantly” going forward.

The Frankfurt-based central bank also increased its growth forecast for 2023, to 1.0 percent, while lowering the inflation forecast to 5.3 percent for this year.

European shares soon rebounded after the announcement, with Frankfurt up 0.2 percent and Paris climbing 0.5 percent as trading got under way on Wall Street. London edged up 0.1 percent.

The euro, which advanced against the dollar ahead of the ECB’s rate decision, quickly lost those gains.

The ECB call is the first by a major central bank since markets were rocked by banking crisis fears, testing the eurozone institution’s resolve to implement another hefty rate hike.

There is also much debate over whether the US central bank will continue with its rate tightening campaign.

The collapse of California lender Silicon Valley Bank (SVB) has been widely linked to the sharp rise in borrowing costs over the past year.

Some commentators expect US Federal Reserve officials to lift rates once more next week but possibly hold afterwards, while there is a growing belief that it could even announce cuts before the end of the year.

But the ECB’s decision will also likely impact the thinking of ECB policymakers, said Naeem Aslam, chief investment officer at Zaye Capital Markets.

“The fact that the ECB has increased the rate by 50 basis points, the chances are now that the Fed is going to do the same as well,” he said.

Wall Street opened lower, with the Dow shedding 0.6 percent.

Data out Thursday didn’t help ease the difficult choice by Fed policymakers.

Weekly first-time job claims fell back below 200,000 and housing starts climbed 9.8 percent month-on-month in February, while building permit applications jumped by double digits.

But other data showed firms still had downbeat expectations about business in the coming months and import prices edged lower month-on-month in February.

A market rout in its share price has forced Credit Suisse to tap a financial lifeline from the Swiss central bank.

Switzerland’s second biggest bank, already battling multiple scandals, sought to stave off the latest crisis by announcing it would borrow up to $53.7 billion from the country’s central bank.

Its shares soared more than 30 percent at the open Thursday. They were up 20.7 percent in afternoon trading.

Oil prices fell further after plunging to their lowest levels in 15 months on Wednesday.

- Key figures around 1330 GMT -

London - FTSE 100: UP 0.1 percent at 7,353.46 points

Frankfurt - DAX: UP 0.2 percent at 14,758.40

Paris - CAC 40: UP 0.5 percent at 6,917.81

EURO STOXX 50: UP 0.3 percent at 4,046.50

New York - Dow: DOWN 0.6 percent at 31,698.53

Tokyo - Nikkei 225: DOWN 0.8 percent at 27,010.61 (close)

Hong Kong - Hang Seng Index: DOWN 1.7 percent at 19,203.91 (close)

Shanghai - Composite: DOWN 1.1 percent at 3,226.89 (close)

Euro/dollar: UNCHANGED at $1.0578

Pound/dollar: DOWN at $1.2046 from $1.2055

Euro/pound: UP at 87.78 pence from 87.71 pence

Dollar/yen: DOWN at 132.03 yen from 133.45 yen

West Texas Intermediate: DOWN 1.5 percent at $66.62 per barrel

Brent North Sea crude: DOWN 1.2 percent at $72.78 per barrel