GLOBAL MARKETS-Stocks buoyant as investors bank on rate cuts

In this article:

(Updates with European opening prices, fresh commentary)

By Naomi Rovnick and Stella Qiu

LONDON SYDNEY, March 1 (Reuters) -

Global shares were buoyant on Friday after U.S. consumer price data contained no nasty surprises, keeping intact hopes of central bank rate cuts in coming months.

With investors now betting on both the U.S. Federal Reserve and the European Central Bank lowering borrowing costs in June, Europe's Stoxx 600 index rose 0.4% in early dealings, extending a record high.

Futures trading implied Wall Street's S&P 500 stock index, which also

hit a record

in the previous session, would open slightly higher later in the day.

Japan's Nikkei index jumped 1.9% to hit a fresh all-time high, extending a surge of 7.9% the previous month when it breached levels last seen in 1989.

Global stocks have been bursting through record levels as traders expected a so-called 'Goldilocks' scenario, where inflation eases without economic growth contracting. Recession fears in the U.S. have faded while the sluggish euro zone economy has shown signs of picking up.

"The period of double-digit inflation from which we are emerging is well and truly over," said Florian Ielpo, head of macro at Lombard Odier in Geneva.

"The growth situation continues to improve."

U.S. personal consumer expenditures (PCE), the Fed's preferred gauge for inflation, rose 2.4% in January from the same month a year ago, the smallest annual increase in three years, data on Thursday showed.

Markets see a 76% probability that the Fed will start cutting interest rates in June, with total easing of 82 basis points priced in for this year.

In Europe, inflation in Germany, France and Spain have all eased, mostly in line with expectations, which should bode well for eurozone inflation data later on Friday.

A raft of global factory surveys are also due on Friday. Those from Asia showed most economies struggled to claw their way out of decline in February, with Japan squeezed by a steeper fall in demand while an uneven recovery in China overshadowed some signs of improvement elsewhere in the region.

The Goldilocks narrative may be optimistic, said Jon Mawby, co-head of absolute and total return credit at Pictet Asset Management. He noted that while hard headline data looked good, softer survey data such as a rise in U.S. credit delinquencies were pointing the other way.

"I think there's a not insignificant probability that the softer data is telling the real (economic) story," he said.

Investors in government bonds, where shifting rate cut signals have caused

volatility

in recent weeks, were less decisive than stock traders about the future path of monetary policy.

The 10-year Treasury yield, which moves inversely to the price of the debt and functions as a benchmark for debt costs worldwide, inched 2 basis points (bps) higher to 4.27% after falling in the two previous sessions.

Germany's 10-year Bund yield rose 6 bps to 2.46% after falling by around the same amount on Thursday.

An index measuring the dollar against competing currencies was steady. The yen < JPY=EBS > stumbled back to almost 151 per dollar after

contrasting comments

from Bank of Japan officials kept investors guessing about when it might end its negative interest rates policy.

Oil prices were steady. Brent was stuck at $81.96 a barrel, while U.S. crude was flat at $78.23.

The spot gold price was 0.2% lower at $2,040.19.

(Reporting by Naomi Rovnick and Stella Qiu; Editing by Jamie Freed, Christopher Cushing and Kim Coghill)

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