- London stocks sank 0.4 precent in afternoon trading after a mixed Asia session, while Frankfurt advanced 0.1 percent and Paris was flat.
LONDON: European and US stocks steadied Thursday after the Federal Reserve brought forward forecasts for hiking interest rates to prevent the US economy overheating.
The dollar meanwhile hit two-month peaks versus the euro and yen, and the highest level against the pound for one month, on the prospect of higher borrowing costs.
London stocks sank 0.4 percent in afternoon trading after a mixed Asia session, while Frankfurt advanced 0.1 percent and Paris was flat.
Wall Street opened mostly lower, adding to losses after the Fed's Wednesday announcement. The Dow was flat as trading got underway, while both the S&P 500 and tech-heavy Nasdaq Composite drifted down.
"The Fed threw... a bit of a curveball," said CMC Markets analyst Michael Hewson.
"The timeline for a possible rise in interest rates was brought forward with the consensus for a possible two hikes by the end of 2023, much sooner than the previous 2024, although the underlying tone remained cautious."
The prospect of rising global interest rates tends to hurt share prices because they increase the cost of loan payments.
Top Fed officials maintained their ultra-easy monetary policy and repeated their belief that the sharp spikes in inflation were expected as businesses reopen and people return to daily lives.
Officials have for months pledged not to budge from their highly accommodative measures and will stay the course until unemployment is tamed and prices are rising excessively for a long period of time.
However, with the economic rebound looking well established, they have lately edged closer towards reducing or "tapering" stimulus measures, and Wednesday's meeting highlighted that.
The closely watched "dot plot" of policymakers' forecasts for interest rates showed 11 of the 18 committee members now expected at least two hikes in 2023.
As recently as March, estimates showed only seven officials seeing a lift-off in 2023. Now there are seven who see next year as a target.
Fed boss Jerome Powell said the projections "do not represent a committee decision or plan" but that the bank was ready to alter policy if it sees signs inflation moved "materially and persistently beyond levels consistent with our goal" of two percent.
Inflation has surpassed that for the past three consecutive months and in May hit a 13-year high.
Powell also said the board had started talking about when to reel in its bond-buying scheme, which along with low rates and vast government stimulus has helped drive a rebound in equities from their April 2020 lows.
He said the Fed would give plenty of notice before making any major changes, and will "do what we can to avoid a market reaction".
While many markets have hit record or multi-year highs in recent months, traders have been worried that the era of record low borrowing costs could be nearing an end soon as economies reopen.
"Uncertainty remains regarding if the Fed can manage its policy effectively amid festering inflation pressures and an accelerating economic recovery," said analysts at Charles Schwab brokerage.
The greenback's rise also weighed on dollar-priced oil, with both main contracts retreating from recent multi-year highs before stabilising.
Key figures at 1330 GMT -
London - FTSE 100: DOWN 0.4 percent at 7,155.50 points
Frankfurt - DAX 30: UP 0.1 percent at 15,728.53
Paris - CAC 40: FLAT at 6,651.83
EURO STOXX 50: DOWN less than 0.1 percent at 4,148.43
New York - Dow: FLAT at 34,038.93
Tokyo - Nikkei 225: DOWN 0.9 percent at 29,018.33 (close)
Hong Kong - Hang Seng Index: UP 0.4 percent at 28,558.59 (close)
Shanghai - Composite: UP 0.2 percent at 3,525.60 (close)
Euro/dollar: DOWN at $1.1942 from $1.1995 at 2100 GMT
Pound/dollar: DOWN at $1.3938 from $1.3988
Euro/pound: DOWN at 85.66 pence from 85.75 pence
Dollar/yen: DOWN at 110.37 yen from 110.71 yen
Brent North Sea crude: DOWN 0.1 percent at $74.29 per barrel
West Texas Intermediate: UP 0.1 percent at $72.22 per barrel