TOKYO, May 16 ― Asian stock markets rallied today, buoyed by Wall Street's surge to all-time peaks overnight after a milder US inflation report raised expectations the Federal Reserve will deliver two interest rate cuts this year.

The dollar remained on the back foot, sagging to fresh multi-week lows against peers including the euro and sterling.

US Treasury yields extended their retreat in Tokyo trading, sinking to six-week troughs. That helped the beaten-down yen to continue its recovery, even as data showed the Japanese economy contracted more than expected in the first quarter.

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Gold marched back toward record levels and crude oil added to gains after rebounding strongly overnight from a two-month trough.

US data yesterday showed the consumer price index (CPI) rose by 0.3 per cent in April, below an expected 0.4 per cent gain, raising hopes the Fed can cut rates by 50 basis points this year, with the first quarter-point reduction fully priced for September.

The data provided succour to markets after higher-than-expected US consumer prices in the first quarter had led to a sharp paring of rate cut bets and even stoked some worries of an additional hike.

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“The expression of relief ripples through risky assets, with markets coming alive the moment we saw US core CPI,” Chris Weston, head of research at Pepperstone, wrote in a report.

“All in all, after three months of troubling price pressures, this is a report that will sit well with (Fed Chair) Jay Powell and co.”

MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.5 per cent. Hong Kong's Hang Seng and Australia's stock benchmark each rallied about 1.6 per cent.

Japan's Nikkei advanced more than 1 per cent.

“US CPI inflation provided relief that the Fed's last mile towards its 2 per cent inflation target may become less complicated,” DBS Group strategists wrote in a client note.

“Market participants are sufficiently satisfied to keep the soft-landing narrative going, buoying risk sentiment in the process.”

Japan's currency was a standout today, far outpacing gains against the dollar among major peers.

The dollar was last down 0.66 per cent at ¥153.86 (RM4.68), from as high as 156.55 in the previous session.

The 10-year US Treasury yield, which the dollar-yen pair tends to track, slipped as low as 4.705 per cent for the first time since April 5 in Tokyo trading.

The dollar index, which measures the currency against the yen, euro, sterling and three other rivals, touched a five-week low of 104.07.

The euro rose to US$1.0895, the highest since March 21, and sterling reached US$1.27005 for the first time since April 10.

Also benefitting from broad dollar weakness, leading cryptocurrency bitcoin marked a fresh three-week top at US$66,694.89 following yesterday's more than 7 per cent advance.

“It's hard to go past the move in crypto,” said Pepperstone's Weston.

“The 23 April swing high of US$67,252 is the near-term target and the level to watch,” he added. “A break here and we will likely see traders chasing this move for a push into US$70,000.”

Gold rose as high as US$2,397.32, pushing toward the all-time peak of US$2,431.29 from April 12.

Brent futures rose 39 cents, or 0.47 per cent, to US$83.14 a barrel, while US West Texas Intermediate crude (WTI) gained 42 cents, or 0.53 per cent, to US$79.05, adding to yesterday's strong gains. ― Reuters