NEW YORK, Jan 13 ― A gauge of global stocks climbed yesterday while longer-dated US Treasury yields and the dollar fell after a reading of consumer prices fed expectations the Federal Reserve may have leeway to scale back the size of future interest rate hikes.

US consumer prices fell in December for the first time in more than 2-1/2 years as prices fell for gasoline and other goods, suggesting inflation was on a sustained downward trend.

Still, a separate reading on the labour market showed weekly initial jobless claims came in at 205,000, below expectations of 215,000. Many market participants are looking for signs of weakness in the labour market as a signal of slowing inflation.

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On Wall Street, equities were choppy after the data, with the S&P 500 falling as much as 0.8 per cent and then rebounding. Friday will bring results from a number of big US banks, kicking off the fourth-quarter earnings season for S&P 500 companies.

The Dow Jones Industrial Average rose 216.96 points, or 0.64 per cent, to 34,189.97, the S&P 500 gained 13.56 points, or 0.34 per cent, to 3,983.17 and the Nasdaq Composite added 69.43 points, or 0.64 per cent, to 11,001.11.

The pan-European STOXX 600 index rose 0.63 per cent, closing at its highest level since April 29, and MSCI's gauge of stocks across the globe gained 0.80 per cent to notch a fifth straight session of gains, its longest streak since August.

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Expectations for a 50 basis point rate hike at the next Federal Reserve meeting fell to 3.8 per cent according to CME's FedWatch Tool, down from 23.3 per cent the day prior. The market is pricing in a 96.2 per cent chance of a 25 basis point hike, up from 76.7 per cent on Wednesday.

The benchmark US 10-year notes were down 12.9 basis points to 3.427 per cent, from 3.556 per cent late on Wednesday.

St. Louis Fed President James Bullard said the inflation data was a step in the right direction and the US economy was primed for disinflation this year, but the road back to the central bank's 2 per cent target would be bumpy. Richmond Federal Reserve president Tom Barkin echoed the sentiment about the data and said it allowed the Fed to “steer more deliberately”.

The dollar index hit its lowest level since early June at 102.07 before slightly paring losses, and was last down 0.873 per cent, with the euro up 0.89 per cent to US$1.0851 (RM4.75).

The Japanese yen strengthened 2.56 per cent versus the greenback at 129.18 per dollar, while Sterling was last trading at US$1.2215, up 0.60 per cent on the day.

Crude prices rose in the wake of the data, getting an additional boost from optimism over China's emergence from its Covid-19 restrictions creating additional demand.

US crude settled up 1.27 per cent at US$78.39 per barrel and Brent settled at US$84.03, up 1.65 per cent on the day. ― Reuters