Stocks sink as oil rally fans inflation and rate hike fears

Hong Kong – Asian stocks fell Thursday as oil prices extended gains a day after breaking the psychological $100 barrier on the back of resurgent Middle East hostilities that have fanned inflation fears. With the US and Iran exchanging strikes around the crucial Strait of Hormuz — and Saudi Arabia entangled in a conflict with Yemeni rebels — there appears little prospect of an end to the crisis, dealing a rally across markets. Brent crude struck past $100 on Wednesday for the first time since July and has surged more than 20 percent in less than a week as forces exchanged attacks on vessels in Hormuz. That has fanned speculation the Federal Reserve and other central banks will have to hike interest rates to tame prices — US diesel is already at a record of almost $6 a gallon. The European Central Bank is tipped to lift borrowing costs Thursday.

In the latest round of attacks, Iran said it hit more than a dozen ships attempting to pass through the strait Wednesday, and announced an expansion of a no-go zone outside the waterway. Tehran has choked off the strait since the war began at the end of February while Washington continues to press a counter-blockade of Iranian ports. Iran also said it struck a US military base in Jordan in response to US forces destroying five Iranian oil tankers a day earlier. Meanwhile, Saudi Arabia is entangled in a conflict with Houthi rebels who are striking oil facilities in the kingdom as part of an offensive towards the Red Sea’s Bab al-Mandab chokepoint. The waterway is an increasingly important route for Saudi oil with the Strait of Hormuz shut. Brent hit a high of $101. 94 Thursday, while West Texas Intermediate peaked at $97. 79, the highest since May. The rally has stoked expectations that inflation will spike again, and comes as…