updated 6/13/2006 3:42:32 PM ET 2006-06-13T19:42:32

Renewed worries about interest rates sent global markets tumbling Tuesday, with the Japanese index plunging more than 4 percent in its biggest one-day loss in two years. European stocks followed, and Columbia led Latin America’s markets lower, dropping 8.8 percent.

Major Market Indices

Concerns over increasing inflation, higher interest rates and slowing growth have been rattling world markets. Investors have been dumping stocks on worries that the U.S. Federal Reserve might raise interest rates again. The European Central Bank raised its key rate last week, and the Bank of England raised investor concern that it may as well.

London’s FTSE 100 index was down 1.8 percent to 5,519.6, while in Paris the CAC-40 Index was down 2.2 percent to 4,617.59. Frankfurt’s Xetra Dax Index was down 1.9 percent to 5,292.14.

On Wall Street, stocks fluctuated in skittish trading as declines in oil and gold prices met with jitters over troubling data on wholesale inflation.

Earlier in Tokyo, the Nikkei 225 index fell 614.41 points, or 4.14 percent, to finish at 14,218.60 points, the lowest close since Nov. 16, 2005. It was the biggest percentage loss in a day since May 10, 2004, and the biggest point drop since Sept. 12, 2001, after the terrorist attacks in the U.S.

South Korean shares dropped 2.9 percent, while Hong Kong plunged 2.5 percent. In Bombay, Indian shares plummeted 4.5 percent to their lowest point this year.

Latin American markets also moved lower, with Columbia’s benchmark index shedding 8.8 percent one day after a 10.5 percent slide. Mexico’s IPC index off 2.5 percent and Brazil’s Bovespa index off 2.11 percent.

U.S. economic data later in the week will be the key to the next move for world markets, said Richard Hunter, head of U.K. equities at Hargreaves Lansdown stockbrokers in Britain. The market could also get more clues as U.S. Federal Reserve chief Ben Bernanke is due to speak twice more this week.

“The current levels of uncertainty show no signs of abating in the short term, and for the moment it would appear that only a series of benign economic data would provide some relief,” Hunter said.

That may not be likely.

“Wall Street is expecting a bloodbath for inflation figures, and that’s spooking foreign investors in Japan who are selling their most liquid holdings, like tech stocks, as they price this in,” said Ben Hao, head of equity trading at Dresdner Kleinwort Wasserstein in Tokyo.

Bank of England Governor Mervyn King added to investor nerves by signaling that the bank might be ready to boost interest rates after holding them steady at 4.5 percent for 10 months.

King said Monday the global economy was facing a “bumpier stretch of the road” and said monetary police may have been “too accommodative.”

“So far we have seen little more than a modest correction to the prices of a wide range of assets that had risen sharply over the previous two years,” King said.

“The realization that such levels of asset prices were unlikely to be sustainable, coupled with a tightening of monetary policy in many countries, has injected uncertainty into financial markets,” he said.

In Asia, blue-chip technology stocks such as Sharp Corp. and Matsushita Electric Industrial Co. were hit particularly hard, as foreign investors aggressively unwound positions, traders said.

Indian shares, among those hit the hardest in recent weeks, fell sharply again, with the benchmark index tumbling to its lowest point this year. The benchmark Sensex index fell 414 points, or 4.4 percent, to 9,063.

South Korean shares plunged 2.9 percent to a more than a seven-month low. The Korea Composite Stock Price Index, or Kospi, fell 35.98 points to 1,203.86, the lowest closing level since Nov. 1, 2005.

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