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London's FTSE 100 fell on Wednesday as a stronger pound weighed on export-oriented retailers, while the country's inflation reading for June jumped past the central bank's target for a second straight month.

The blue-chip FTSE 100 index slid 0.3%, with travel stocks down nearly 0.7%. Retailers Unilever (LON:ULVR), GlaxoSmithKline, and Diageo (LON:DGE) were among the top drags as the pound rose after inflation jumped to its highest in almost three years.

The domestically focussed mid-cap index fell 0.4%, with Cineworld being the top loser.

British inflation rose further above the Bank of England's target in June at 2.5%, up from 2.1% in May, led by higher prices for food, fuel, second-hand cars, clothing, and footwear, official data showed on Wednesday.

That pushed UK's benchmark 10-year bond yields up by five basis points, but the central bank's comments that said the spike is likely to be transitory helped curb further losses.

"We're still stuck in an inflationary limbo, where we can't tell if rising prices are a statistical blip, or a more concerning and permanent feature of the global economic recovery," said Laith Khalaf, a financial analyst at AJ Bell.

The blue-chip FTSE 100 has gained nearly 10% so far this year, supported by cheap interest rates, but its pace of growth has slowed since June to trade range-bound near the 7,100 level as higher COVID-19 cases and inflation weighed on investor mood.

Among stocks, AstraZeneca (NASDAQ:AZN) lost 0.7% and was the top drag on the FTSE 100. UK's competition regulator cleared its $39 billion buyout of U.S.-based Alexion (NASDAQ:ALXN).

Barratt Developments (LON:BDEV) gained 1.3% after it forecast 2021 profit to be marginally above the top end of market expectations.

Snack food firm SSP Group tumbled 2.7% on its chief executive officer's plans to step down from his role at the end of 2021 to join a private equity-backed business.

Bond yields jumped and global share prices slipped after posting new highs on Tuesday as the biggest hike in U.S. inflation in 13 years rattled investors who fear rising interest rates could end a stock market rally that has doubled prices from 2020 lows.

The yield on U.S. Treasury debt initially fell on news the U.S. consumer price index in June jumped 5.4% year over year, the largest gain since August 2008, the Labor Department said.

But a weak Treasury auction sparked a 4.7-basis-point jump in the benchmark 10-year note to 1.41% after initially falling to 1.343% after the CPI data was released.

The inflation spike followed a 5.0% increase in the 12 months through May, while CPI rose 0.9% month over month after advancing 0.6% in May, gains that unnerved investors.

Stocks on Wall Street at first took the CPI data in stride, bidding up technology stocks that typically thrive with low interest rates.

The $24 billion of 30-year bonds were sold to yield 2.00%, or more than two basis points above where the debt had traded before the auction.

The jump in inflation ultimately is a negative hanging over a market that has enjoyed a remarkable rally since the lows of March 2020, said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

"Inflation is not the worst news for stocks, but it's very bad news for bonds," Meckler said. "You're starting to see some of the potential negatives that could bring an end to this incredible rally this year."

MSCI's world equity index, which tracks shares in 50 countries, fell 0.14% to close at 726.33, after earlier setting a new high at 728.77. In Europe, the broad FTSEurofirst 300 index added 0.07% to set a record close of 1,779.34.

On Wall Street, the Dow Jones Industrial Average fell 0.31% to 34,888.79, the S&P 500 lost 0.35% to 4,369.21 and the Nasdaq Composite dropped 0.38% to 14,677.65.

Stock investors could re-enter the market to buy "on the dip" as investors wait to see if the Federal Reserve takes aggressive steps to halt rising inflation, Meckler said.

Federal Reserve Chair Jerome Powell testifies before Congress on Wednesday and Thursday.

"A lot of this will play into the Fed's transitory story," Gennadiy Goldberg, interest rate strategist at TD Securities in New York, said about the CPI data. "You can argue that a lot of this (inflation spike) is due to the recovery."

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.56% to 92.778. The euro fell 0.70% to $1.1776, while the Japanese yen was last up 0.24% at $110.6200.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 1%, its best daily gain since late June, led by a 1.6% rise in Hong Kong, where tech stocks rose broadly. Japan's Nikkei was up 0.5% while Australian shares closed broadly flat.

In Hong Kong, tech behemoth Tencent Holdings Ltd (HK:0700) jumped 3.9% after China's antitrust regulator on Tuesday approved its plan to take China's No.3 search engine, Sogou Inc, private in a $3.5 billion deal.

Euro zone government bond yields have fallen in line with U.S. Treasuries in recent weeks, and are running close to their lowest levels since early April.

Germany's 10-year bond yield was unchanged at -0.297%, close to a three-month low of -0.344% hit last week.

South Africa's rand dropped to a three-month low, slipping 1.2% to 14.4000 against the dollar, as violence escalated over the jailing of former President Jacob Zuma.

Brent crude settled up $1.33 at $76.49 a barrel. U.S. crude rose $1.15 to settle at $75.25 a barrel.

Gold was little changed as a firmer dollar offset support from bets that the Fed was unlikely to respond to the jump in U.S. inflation with immediate monetary tightening.

U.S. gold futures settled up 0.2% at $1,809.90 an ounce.

A report that Apple Inc (NASDAQ:AAPL) is working on a service to let users pay for purchases in instalments dragged down shares in the 'buy now, pay later' sector, which has thrived during the pandemic as online shoppers look for easier repayment options.

The U.S. tech giant will use Goldman Sachs (NYSE:GS), its partner since 2019 for the Apple Card credit card, as the lender for the loans, Bloomberg News reported, citing people familiar with the matter.

The prospect of going up against a behemoth like Apple, as well as other entrants including PayPal, was likely to test Australian pure-play BNPL firms that have so far gone unchallenged in a fertile U.S. market.

Shares of Australia-listed Afterpay, the country's biggest BNPL provider which derives a big chunk of its revenue from the United States, dived nearly 10% on Wednesday.

Smaller rivals Zip Co Ltd and Sezzle fell sharply. Nasdaq-listed Affirm Holdings Inc tumbled more than 14% on Tuesday following the Bloomberg report and closed 10.5% lower.

Apple Pay is a bigger threat than potential offerings from banks or credit companies given its wide reach and superior consumer experience on a mobile website or in-store, a client note by Citi analysts said.

The BNPL industry has boomed as online shopping picked up pace during the global health crisis, with the number of merchants in the United States adding the repayment option nearly tripling in 2020, according to a McKinsey report.

In Australia, where the regulation of the fast-growing sector is light and adoption is higher compared to other markets, a Deloitte report said 30% of the consumers in the country have a BNPL account.

The sector's fast-paced growth attracted Swedish firm Klarna, which has emerged as a major rival in Australia, and caught the attention of mainstream U.S. companies.

U.S. payments giant PayPal launched its service in Australia on Wednesday and raised the ante by saying it would do away with late fees, an area that had earned Afterpay close to A$70 million ($52.23 million) in fiscal 2020.

The Bloomberg report said Apple Pay users would be allowed to split their payments into four interest-free instalments, or across several months with interest - a model similar to rivals Klarna, Afterpay, Zip's Quadpay and Affirm.

A Goldman Sachs spokesperson declined to comment, while Apple was not available for comment.

Afterpay said competition reinforces the significance of the sector and that each BNPL player operates a different model and generate revenue in different ways.

A Zip spokesman said Apple's reported move validated the company's business where it was growing customer numbers despite increased competition.

($1 = 1.3401 Australian dollars)

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