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Stocks falter as Yellen cuts stimulus, hints at eventual hike to rates

European stock markets fell heavily on Thursday, following Asia and Wall Street, as traders fretted over the prospect of an earlier-than-expected hike in U.S. interest rates.

London's benchmark FTSE 100 index dropped 0.86 percent to stand at 6,516.66 points in afternoon trading.

The CAC-40 in Paris shed 0.64 percent compared with Wednesday's closing values to 4,280.28 points and Frankfurt's DAX 30 lost 0.82 percent to 9,200.75.

“Fed chair Janet Yellen spooked the markets by suggesting we could see the first hike in interest rates in the middle of 2015,” said Craig Erlam, market analyst at Alpari traders.

Wrapping up a two-day policy meeting on Wednesday, the U.S. Federal Reserve said it would cut a further US$10 billion from its monthly stimulus program, as widely predicted.

But Fed chief Yellen rattled markets by saying the time frame for raising U.S. interest rates could be “on the order of around six months” after the stimulus ends.

With the stimulus likely to wrap up by year's end, Yellen's comments suggest a hike to the Fed's main interest rate in early 2015. Expectations had been for an increase late next year.

Wall Street tumbled to a lower finish in reaction, while Asian stock markets ended with large falls on Thursday.

U.S. stocks continued falling in opening trade on Thursday, with the Dow Jones Industrial Average sliding 0.14 percent to 16,198.86 points.

The broad-based S&P 500 edged down 0.08 percent to 1,859.35, while the tech-rich Nasdaq Composite Index slipped 0.09 percent to 4,303.62.

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