NEW YORK, Dec 27 — Global stocks crept higher yesterday and the dollar lingered near a five-month low as investors held fast to bets that cooling US inflation will lead the Federal Reserve to cut interest rates next year.

Oil prices jumped over 3 per cent earlier in the session to the highest in almost a month, as Middle East strife continues and investor hope possible rate cuts will boost global economic growth and fuel demand.

Trading was thin on the day after Christmas with several markets, including those in Australia, Hong Kong, Britain and Germany, closed for Boxing Day.

MSCI’s gauge of stocks across the globe gained 0.39 per cent. On Wall Street, the Dow Jones Industrial Average rose 0.43 per cent, the S&P 500 gained 0.42 per cent, and the Nasdaq Composite .IXIC added 0.54 per cent.

In a sign the US economy was holding up, a report by Mastercard yesterday showed US retail sales rose 3.1 per cent between November 1 and December 24, lower than last year’s 7.6 per cent gain.

"Consumers are still spending, but they’re still price conscious and want to stretch their budgets,” said Arun Sundaram, an analyst at CRFA Research.

The yield on 10-year Treasury notes was down a touch at 3.895 per cent, while the two-year US Treasury yield was up 1.8 basis points at 4.3584 per cent.

US crude trimmed earlier gains to finish up 2.1 per cent at US$75.12 per barrel and Brent was at US$80.66, up 2.01 per cent on the day.

The dollar index slipped 0.17 per cent to 101.47, a hair’s breadth from a five-month low of 101.42 struck on Friday. A soft dollar helped to lift the euro up 0.3 per cent to US$1.104.

Investors were still digesting data released on Friday that showed US prices fell in November for the first time in more than 3-1/2 years, underscoring the economy’s durability.

Inflation, as measured by the personal consumption expenditures (PCE) price index, fell 0.1 per cent last month.

"In a way, markets could not have asked for better news from the continued easing of the core PCE deflator in November,” said Nicholas Chia, Asia macro strategist at Standard Chartered.

"Thin liquidity conditions are likely to exacerbate the so-called ‘Santa Claus rally’ in equities ahead of the turn of the year,” Chia added.

The end of the year tends to be a strong period for stocks, a phenomenon dubbed the "Santa Claus Rally.”

Stock investors have cheered recent signs from the Fed on the outlook for rates. At the conclusion of its policy meeting on December 13 the Fed signalled it had reached the end of its tightening cycle and opened the door to interest rate cuts in the coming year.

Markets are now pricing in a 75 per cent chance of a 25 basis points rate cut from the Fed in March, according to the CME FedWatch tool, compared with a 21 per cent chance at the end of November. Markets are also pricing in more than 150 basis points of rate cuts next year.

"The Federal Reserve has aggressively changed its rhetoric to engineer a significant easing of financial conditions,” Citi analysts said in a note.

"A combination of slower core inflation and rising recession concerns led Fed officials to shift rhetoric away from a commitment to fight inflation with higher-for-longer rates and toward reassuring markets that they will not ‘hang on’ to higher rates for too long.”

In Asia, China stocks fell 0.47 per cent, weighed down by semiconductor shares, while gaming stocks stabilised after a slew of companies announced share buyback plans. Hong Kong’s Hang Seng Index .HSI remained closed.

Japan’s Nikkei gained 0.16 per cent and remains the best performing major Asian stock market with a 27 per cent rise in 2023.

The yen was flat versus the greenback at 142.47 per dollar, retracing some recent gains made on the prospect of the Bank of Japan soon ending its ultra-easy policy.

The Asian currency is up 4 per cent this month, on course for a second straight month of gains against the dollar. But for the year, the yen remains down 7.8 per cent against the greenback.

Spot gold added 0.7 per cent to US$2,067.19 an ounce, while Bitcoin fell 3.26 per cent to US$42,171.00. — Reuters