US stock market news: Dow surges 415 pts, Nasdaq reclaims 12,200 after US inflation rekindles hopes of early end to rate hikes

A gauge of global stocks was on course for its biggest weekly percentage gain in 4-1/2 months on Friday, with the two-year U.S. Treasury yield set for its first quarterly decline in the past nine, as U.S. inflation data fueled hopes the Federal Reserve may be reaching the end of its rate hiking cycle.

U.S. consumer spending rose moderately in February, and while inflation cooled, it remained elevated enough to possibly allow the Federal Reserve to raise interest rates one more time this year.

Additional data showed U.S. consumer sentiment fell for the first time in four months in February on concerns of an impending recession, although the impact of the recent banking crisis was muted.

Expectations for a 25 basis point rate hike at its May meeting dipped to about 50 per cent, with no hike seen to be just as likely.

However, Boston Federal Reserve President Susan Collins said the inflation data doesn't alter the Fed's monetary policy path yet, while New York Fed President John Williams said financial conditions will be a key contributor to his thinking about what’s next for central bank interest rate policy.

"Fed fund futures are basically pricing in a coin flip of a 25 (basis point) hike in May, but calling that the end of it, if they even go there, so anytime the data doesn’t give the Fed a reason to re-engage hawkishly, the market is going to like it," said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

"It’s not like it was a soft print but it was below consensus on pretty much every metric and the core data is creeping closer to where the Fed wants it."

On Wall Street, U.S. stocks rose, with the S&P 500 set to notch its second straight quarterly advance as it closed at its highest level since February 15, after advancing for three straight weeks to close out the month.

The Nasdaq Composite, up 16.8 per cent in the first quarter, snapped a streak of four straight quarterly declines.

On the session, the Dow Jones Industrial Average (.DJI) rose 415.12 points, or 1.26 per cent, to 33,274.15, the S&P 500 (.SPX) gained 58.48 points, or 1.44 per cent, to 4,109.31 and the Nasdaq Composite (.IXIC) added 208.44 points, or 1.74 per cent, to 12,221.91.

European shares were also higher, after a reading of inflation in the euro zone dropped by the most on record in March, although the core price growth, which excludes food and energy, accelerated.

The pan-European STOXX 600 index (.STOXX) closed up 0.66 per cent and MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 1.04 per cent, on track for its biggest weekly gain since mid-November.

Even with a slight decline for the month, the STOXX index notched a second straight quarterly gain. MSCI's index was poised for a fifth straight session of gains, its longest streak in two months, and recorded gains in back-to-back quarters.

Expectations the Fed may be nearing the end of its rate hiking cycle have helped send U.S. Treasury yields lower recently. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 4.7 basis points at 4.052 per cent on the day, after touching a low of 4.023 per cent.

The two-year yield is set to decline for the first time in nine quarters after a drop of about 75 basis points in March, the biggest monthly drop since January 2008 during the financial crisis then.

Benchmark 10-year notes were down 7 basis points to 3.481 per cent, from 3.551 per cent late on Thursday. The 10-year yield is down more than 40 basis points for the month.

The dollar pared some gains against the euro in the wake of the U.S inflation data, as investors see the Fed pausing its rate hiking cycle before the European Central Bank.

The dollar index rose 0.342 per cent, with the euro down 0.53 per cent to $1.0843. The dollar index is on pace for its second straight quarterly decline.

The Japanese yen weakened 0.08 per cent versus the greenback at 132.74 per dollar, while Sterling was last trading at $1.2331, down 0.42 per cent on the day.

Oil prices were higher on the session to record their second straight weekly advance.

U.S. crude recently settled up 1.75 per cent at $75.67 per barrel and Brent settled at $79.77, up 0.63 per cent on the day.