S&P 500, Nasdaq gain, Treasury yields dip as data firms Fed pause bets

US stock market: Wall Street closed mixed on Wednesday, and U.S. Treasuries oscillated within a tight range after data showed underlying inflation remained on its slow, downward trajectory, cementing the likelihood that the Federal Reserve will let interest rates stand for now. The S&P 500 gained modestly and interest-rate sensitive mega caps, led by Amazon.com (AMZN.O) and Microsoft Corp (MSFT.O), gave the tech-heavy Nasdaq the edge.

The blue-chip Dow Jones Industrial Average ended modestly lower. U.S. consumer price (CPI) data showed prices heated up in August at their fastest pace in 14 months due to rising energy prices, but the "core" measure, which excludes volatile food and energy items, remained on its meandering path down toward the Federal Reserve's average 2 per cent annual inflation target. "Since markets were weak the last few days, maybe people were fearing more core inflation than we saw," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. The report "confirms the idea of the Fed waiting to see what further data show before a possibly hiking rates in November."

Tuz noted that "CPI was slightly positive on a core basis, but surging gasoline prices affect retail sales." He explained that "The extra $20 you spend filling your tank is $20 less you spend on other things." Financial markets have priced in a 97 per cent likelihood of the Federal Reserve standing pat at next week's monetary policy meeting, leaving the key Fed funds target rate at 5.25 per cent-5.50 per cent, according to CME's FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 70.1 points, or 0.2 per cent, to 34,575.89, the S&P 500 (.SPX) gained 5.59 points, or 0.13 per cent, to 4,467.49 and the Nasdaq Composite (.IXIC) added 39.96 points, or 0.29 per cent, to 13,813.59. European shares ended lower as investors looked beyond the CPI report and a drop in euro zone industrial production to focus their attention on this week's European Central Bank policy meeting.

The pan-European STOXX 600 index (.STOXX) lost 0.32 per cent and MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 0.01 per cent. Emerging market stocks lost 0.09 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.19 per cent lower, while Japan's Nikkei (.N225) lost 0.21 per cent. U.S. Treasury yields inched lower in the wake of the CPI report, which suggested the Fed will keep interest rates steady at its upcoming meeting.

Benchmark 10-year notes last rose 3/32 in price to yield 4.2544 per cent, from 4.264 per cent late on Tuesday. The 30-year bond last /32 in price to yield 4.3463 per cent, from 4.346 per cent late on Tuesday. The greenback steadied against a basket of world currencies following the inflation data, which did little to move the needle regarding the Fed's expected rate hike pause.

The dollar index (.DXY) rose 0.05 per cent, with the euro down 0.2 per cent to $1.0731. The Japanese yen weakened 0.26 per cent versus the greenback at 147.47 per dollar, while Sterling was last trading at $1.249, up 0.05 per cent on the day. Oil prices dipped as a surprise U.S. inventory build helped market participants look past expectations of tight supply.

U.S. crude slipped 0.36 per cent to settle at $88.52 per barrel, while Brent settled at $91.88 per barrel, down 0.2 per cent on the day. Gold prices edged lower, hovering near two-week lows after the CPI report helped give the dollar a slight boost. Spot gold dropped 0.3 per cent to $1,908.39 an ounce.