Stock markets in Europe and Asia fell today after Federal Reserve chairman Ben Bernanke appeared to hint that inflationary pressures will prevent another cut in US interest rates.

China's main stock market, the Shanghai composite index, tumbled by almost 8% today, continuing its sharp decline since last November.

Hong Kong's Hang Seng index shed over 4% as some Asian investors took fright, with Tokyo's Nikkei falling 1.1%.

Europe's markets shared in the negative sentiment, with the FTSE down 1.15% at one stage. It closed down 50 points at 5,827.3. France's CAC index was down 0.8%, and the German DAX was 0.7% lower.

Asian traders said that the sharp declines were primarily caused by a speech given by Bernanke, in which he pledged to fight inflationary pressures.

Speaking in Massachusetts last night, he said the odds of a substantial economic downturn had receded and that policy makers must ensure that higher commodity prices are not passed on to consumers.

Bernanke's vow that the Fed would "strongly resist an erosion of longer- term inflation expectations" was taken as a warning that US interest rates will not be cut again. Last week, European central bank president Jean-Claude Trichet hinted that eurozone rates could be raised later in the summer.

Shares on Wall Street also fell when trading began this afternoon, but by 6pm the Dow Jones industrial average was up 41 points at 12, 321.

Banks were among the big fallers in Asia, and in London, following Lehman Brothers' first ever loss yesterday.

The Shanghai composite index, which closed at 3,073 points, is 50% lower than its peak last October when it reached 6,124. That was the climax of a bull market that began in 2005, when private investors began pouring money into shares.

Some of the falls were also due to the markets such as Shanghai, Hong Kong and Sydney – which were closed on Monday - catching up with earlier losses on Wall Street and London.