Indian shares fall nearly 2 percent on Fed rate hike jitters

REUTERS - Indian shares fell nearly 2 percent on Monday, posting their biggest single-day percentage drop since the Brexit vote, in a global selloff on renewed talks that the U.S. Federal Reserve might be serious about raising interest rates as early as next week.

Also, weighing on sentiment was reports that the Bank of Japan was considering ways to steepen the Japanese yield curve, along with worries that central banks more generally were running short of fresh stimulus options.

Reflecting the caution, Asian shares suffered their sharpest setback since June with MSCI's broadest index of Asia-Pacific shares outside Japan falling 2.2 percent, pulling away from a 13-month peak hit last week.

 

Some Fed officials have been trying to convince markets that the September meeting would be "live" for a hike, even though futures only imply a one-in-four chance of a move.

"The main trigger for today's fall comes from the Fed comments made on Friday on the increased probability of a rate hike. Markets also remain heated from last week's reports of a nuclear test in North Korea," said Neeraj Dewan, director at Quantum Securities, adding that he expected the market volatility to continue until the Fed decision.

The NSE volatility index, a key gauge to measure investors' fear, rose as much as 13.9 percent to its highest since Aug. 10.

Investors also await the August consumer price inflation data expected later in the day for clues about the economy.

The broader NSE Nifty was down 1.5 percent at 8,734.6 as of 11.53 a.m. after declining as much as 1.89 percent earlier in the day, while the benchmark BSE Sensex was 1.4 percent lower at 28,393.9 after shedding up to 1.9 percent.

Both the indexes posted their worst intraday fall since Britain voted on June 24 to leave the European Union.

Indian stock markets will be closed on Sept. 13 for a public holiday.

Banking shares took the maximum hit with the Nifty bank index among the leading losers, posting its biggest intraday percentage fall since June 24. The sector had gained about 5.5 percent in the last two weeks.

Among banks, State Bank of India fell 2.6 percent, Punjab National Bank declined 2.6 percent and ICICI Bank dropped 3.3 percent.

Welspun India fell as much as 4.9 percent after U.S. retailer Wal-Mart said it stopped selling the Indian firm's Egyptian cotton products as it was unable to assure them the products were authentic.

Tata Steel Ltd fell 3.7 percent ahead of its June-quarter results later in the day.

(Reporting by Samantha Kareen Nair in Bengaluru; Editing by Subhranshu Sahu)