World shares, euro slide as high oil prices, fiscal worries linger

By Lawrence Delevingne and Stefano Rebaudo

Oct 7 (Reuters) - Global stocks and the euro pulled back on Wednesday as oil prices held near $100 a barrel amid renewed Middle East tensions, while uncertainty about US Federal Reserve rate policy and France's fiscal condition weighed on overall sentiment.

The S&P 500 and tech-heavy Nasdaq slid about 0.2%, a day after both hit record highs. 

The pan-European STOXX 600 <.STOXX> index ended 1% lower, giving up most of the gains from the last three sessions. Banks took a beating once again, down 3.3%. MSCI's main world stocks index fell 0.6%.

Oil prices settled lower on Wednesday following a choppy session after the International Energy Agency agreed to speed up a release of oil stocks and prioritize diesel in a bid to curb record-high fuel prices as the Iran war squeezes global supplies. Brent crude futures <LCOc1> settled down 38 cents, or 0.38%, at $100.20 a barrel. 

The direction of interest rates also remained in focus.

Minutes released on Wednesday showed Federal Reserve policymakers were divided last month over the rationale for raising interest rates. They showed that "some participants" saw a hike as needed to keep the impact of energy and other price shocks at bay, but a more hawkish core viewed it as necessary to guard against emerging demand-driven inflation.

Russ Brownback, BlackRock's deputy chief investment officer of global fixed income, said in a note that the latest rate increase did not foretell a predetermined tightening cycle.  

"The committee's decision is more nuanced than a simple conclusion that economic growth is too strong to engender price stability," Brownback wrote. "In other words, the Fed is reinforcing its commitment to be vigilant — not necessarily embarking on a sustained tightening campaign."

US Treasuries rose in afternoon trading on Wednesday, with yields backing away from their highs as oil prices fell and a strong $39 billion auction of 10-year notes reassured investors that demand for long-term government debt remained intact despite recent market volatility.

The yield on benchmark US 10-year notes was last at 5.284%.

EURO DOWN

The rekindling of investor concerns weighed on the euro, which slipped 0.6% to $1.119. It slid to a 17-month low against the dollar at $1.1161 earlier this week. The dollar index rose 0.37%, following a 0.27% slide in the prior session. 

French bonds have been under pressure as expectations of higher European Central Bank rates and political uncertainty before the 2027 election raise doubts over France's ability to fix its finances.

Wider yield spreads in the euro area weigh on the single currency by boosting expectations of ECB monetary easing, reviving worries about fiscal sustainability and stoking fears of increasing fragmentation in the euro area.

"The interest rate spread between Germany and the US became more negative, which provided support to the US dollar against the euro," Georgette Boele, senior currency and oil strategist at ABN AMRO, said.

"We continue to believe that financial markets are pricing in too many rate increases by the Fed and the ECB," Boele said.

(Reporting by Lawrence Delevingne and Stefano Rebaudo; Additional reporting by Dhara Ranasinghe; Editing by Tomasz Janowski, Will Dunham, Alexander Smith and Nick Zieminski)