* Stocks mixed, Europe and U.S. head lower, Asia rises
* UK inflation hits 9% but sterling sinks 1%
* German 2-year yield hits 2011 high on ECB rate hike bets
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, May 18 (Reuters) - A rebound in stocks ran out of
steam on Wednesday as concerns about the economic growth outlook
and rising inflation knocked sentiment, while a UK inflation
reading of 9% underlined just how much higher interest rates
might be headed.
European shares were mostly lower and futures on Wall Street
pointed to a weaker open .
Many analysts have characterised this week's sharp rally as
a short-term bounce of the sort common during a lengthier
downward trend for equities. Few are willing to predict the end
to selling after a bruising first five months of the year for
risky assets given so much macroeconomic uncertainty.
"Investor sentiment and confidence remain shaky, and as a
result, we are likely to see volatile and choppy markets until
we get further clarity on the 3Rs -- rates, recession, and
risk," said Mark Haefele, chief investment officer at UBS Global
Wealth Management.
By 1115 GMT, the broad Euro STOXX 600 was off
0.35%, while Britain's FTSE 100 was 0.23% lower.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.68% and is on its longest winning streak
since February. Japan's Nikkei rose 0.94% and miners led
Australian shares about 1% higher.
The MSCI World Equity Index inched up 0.1%
and is nearly 2% higher so far this week, but remains down 16%
from its peak in January.
In currency markets, sterling was the big loser, shedding as
much as 1% to $1.2373 after UK consumer price inflation
hit 9% in April, a 40-year high and roughly in line with
analysts' expectations. The pound had risen sharply this week
and some of Wednesday's fall was down to profit taking.
British inflation is now the highest among major economies
but prices are rising rapidly across the world, forcing central
banks to hike rates even in the face of slowing economic growth
momentum.
Canada's April inflation reading is also due later on
Wednesday.
The U.S. dollar rose 0.3% to 103.62 after a big fall
on Thursday and headed back towards its two-decade high reached
last week, while the euro fell by a similar amount to $1.0513
.
NEGATIVE SHOCKS
Positive data has helped the mood this week, with U.S.
retail sales meeting forecasts for a solid increase in April and
industrial production beating expectations.
Data on Wednesday showed Japan's economy shrank less than
expected in the first quarter.
Shanghai is edging towards an end to its protracted lockdown
and China's vice-premier made soothing comments to tech
executives in the latest sign of a let up in pressure.
However, good news was offset by the reminder from Federal
Reserve Chair Jerome Powell that controlling inflation would
demand rate rises and possibly some pain.
Investors have priced in 50 basis point U.S. rate hikes in
June and July and see the benchmark Fed funds rate nudging 3% by
early next year.
U.S. Treasury yields were steady on Wednesday below recent
multi-year highs, but the German 2-year government bond yield
shot to its highest since December 2011 after more
hawkish central banker comments. The European Central Bank's
Klaas Knot said on Tuesday that a 50 basis point rate hike in
July was possible if inflation broadens.
Commodities have rallied with stocks this week, although
most prices are below recent highs.
On Wednesday Brent crude futures gained 0.85% to
$112.88 a barrel and U.S. crude futures rose 1.19% to
$113.74 a barrel.
S&P Global Ratings cut growth forecasts for China, the
United States and the euro zone, underlining the weakening
outlook for the world's major economies.
"Two developments have altered the macro picture," said
chief economist Paul F. Gruenwald, pointing to Russia's invasion
of Ukraine and inflation, which has turned out to be higher,
broader and more persistent than first thought.
(Additional reporting by Tom Westbrook in Singapore; Editing by
Kim Coghill, William Maclean)
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