Stocks bounce after sinking on US rate hike fears

American and European equities rebounded Monday after sinking last week on renewed fear of more aggressive US interest rate hikes, dealers said.

London gained 0.7 percent, while Frankfurt climbed 1.1 percent and Paris stocks won 1.5 percent.

On Wall Street, all three major indices ended higher, with the Dow Jones Industrial Average adding 0.2 percent while the tech-heavy Nasdaq Composite Index gained 0.6 percent.

Oil prices fell Monday on concern over the demand outlook in top energy consumer the United States.

"Investors shrugged off the inflation and interest rate concerns which bedevilled markets last week," said investment director Russ Mould at stockbroker AJ Bell.

"This went against the prevailing mood in Asia which followed in the footsteps of the United States in seeing material declines."

But Edward Moya of Oanda cautioned that "the economy still looks too strong for disinflation trends to resume," suggesting the US Federal Reserve has more work to do to cool inflation and creating a tough environment for stocks.

Nick Reece of Guinness Global Investors noted that there is a "higher-for-longer theme now" when it comes to interest rates, and this is being priced into the bond market.

"That's going to continue to put some valuation pressure on the market, particularly on tech stocks," he said.

Asian indices sank after a pre-weekend selloff in Europe and on Wall Street, as forecast-beating US inflation data reinforced expectations the Fed would continue to ramp up interest rates for some time.

The personal consumption expenditures price index followed bright jobs figures and other data showing the economy cooling slower than hoped.

This month's news has wiped out optimism that the Fed will be able to soon pause its monetary tightening and possibly cut borrowing costs before the end of the year.

Traders will be keeping a close eye on further comments from bank officials this week.

Some officials have already suggested they are open to hiking by 50 basis points at the next gathering, and several said they saw room for further tightening after Friday's data release.

"The clouds of uncertainty remain with us -- the market's consensus view that inflation would head lower through the year has clearly been challenged," Chris Weston of Pepperstone Group said in a note.

The prospect of more Fed rate hikes sent the dollar surging against its peers Friday and it held those gains in Asian business, sitting at a two-year high versus the yen.

Adding to the yen's weakness were comments Friday from the man expected to take over as head of the Bank of Japan indicating he will maintain an ultra-loose monetary policy for now.

That came even as data showed Japanese inflation at a four-decade high.

The pound perked up as Britain and the EU agreed a crucial overhaul of trade rules in Northern Ireland, a breakthrough aimed at resetting seriously strained relations since Brexit.

- Key figures around 2130 GMT -

New York - Dow: UP 0.2 percent at 32,889.29 points (close)

New York - S&P 500: UP 0.3 percent at 3,982.35 (close)

New York - Nasdaq: UP 0.6 percent at 11,466.98 (close)

London - FTSE 100: UP 0.7 percent at 7,935.11 (close)

Frankfurt - DAX: UP 1.1 percent at 15,381.43 (close)

Paris - CAC 40: UP 1.5 percent at 7,295.55 (close)

EURO STOXX 50: UP 1.7 percent at 4,248.01 (close)

Tokyo - Nikkei 225: DOWN 0.1 percent at 27,423.96 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 19,943.51 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,258.03 (close)

Dollar/yen: DOWN at 136.22 yen from 136.48 yen on Friday

Euro/dollar: UP at $1.0611 from $1.0548

Pound/dollar: UP at $1.2062 from $1.1944

Euro/pound: DOWN at 87.94 pence from 88.31 pence

Brent North Sea crude: DOWN 0.9 percent at $82.45 per barrel

West Texas Intermediate: DOWN 0.8 percent at $75.68 per barrel