FILE PHOTO: A chart of the German DAX stock index is displayed on a screen at the Frankfurt Stock Exchange, Germany. February 27, 2023. REUTERS/Staff/File

By Nell Mackenzie and Dhara Ranasinghe

LONDON, March 2 (Reuters) – Global stock markets weakened on Thursday, under pressure from falling Chinese stocks and rising U.S. bond yields, amid fears the Federal Reserve and European Central Bank will continue to raise interest rates to combat high inflation.

* European stocks fell to their lowest level in a month as stronger-than-expected eurozone inflation figures justified what is expected to be another 50 basis point hike this month in interest rates interest from the European Central Bank, which are already at their highest for a decade.

* Consumer price inflation in the 20 countries sharing the euro fell to 8.5% in February, from 8.6% the previous month, due to lower energy prices, but it still exceeded expectations by 8.2% according to a Reuters poll of economists.

* The MSCI global equity index fell 0.2% to near 7-week lows. The STOXX 600 index was down 0.3% and Wall Street S&P futures were down 0.6%.

* Nasdaq futures fell 0.7%, hurt by a 5.5% drop in Tesla shares in after-hours trading on Wednesday. The company has said it will cut assembly costs for its future generations of cars in half, but its chief executive, Elon Musk, has not unveiled a small and affordable electric vehicle.

* During the Asian session, government bonds and benchmark stocks took a hit, with German and US inflation indicators bolstering expectations that interest rates would rise and stay that way longer. .

* The yield on German 2-year government bonds hit its highest level since October 2008.

* In the United States, manufacturing activity contracted for the fourth consecutive month in February, but a gauge of commodity prices rose last month, stoking fears that inflation will remain high.

* The 10-year Treasury yield hit a new four-month high at 4.034%, while the two-year yield also hit 4.902%, a new 16-year high.

* Investors still widely expect the Fed to hike rates 25 basis points at its next meeting this month, but expectations of a bigger 50 basis point hike have risen. The likelihood that the Federal Reserve’s official interest rate, currently between 4.5% and 4.75%, will rise above 5.5% stands at 53%, down from 41.5% on December 28, according to CME Fed tool.

* On the foreign exchange markets, the dollar index, which measures its performance against a basket of six currencies, rose 0.2% to 104.62.

* The euro was down 0.4% at $1.0625 and the pound was down 0.42%, with higher than expected inflation figures adding to pressure on the ECB to raise rates .

* U.S. Oil rose 0.7% to $78.20 a barrel, Brent Crude rose 0.6% to $84.77 a barrel at 0945 GMT.

* Spot gold was trading slightly lower at $1,832.73 an ounce.

(Reporting by Nell Mackenzie; Editing in Spanish by Ricardo Figueroa)

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