Stocks rise, dollar dips ahead of US inflation data

By Lawrence Delevingne and Amanda Cooper

(Reuters) -Global shares rose and the dollar pulled back on Tuesday, a day ahead of U.S. inflation data that could warrant a quicker end to Federal Reserve rate hikes, while the prospect of China propping up growth helped to lift oil and other commodities.

Wall Street posted gains across its major stock indexes. The Dow Jones Industrial Average rose 0.93%, to 34,260.82, the S&P 500 gained 0.67%, to 4,439.25 and the Nasdaq Composite added 0.55%, to 13,760.70.

The MSCI All-World index rose 0.85%, lifted by gains in European shares, with the STOXX 600 up 0.72%.

Investors digested recent comments from Federal Reserve officials who said the level of inflation warranted additional rate hikes, but the central bank is nearing the end of its monetary policy tightening cycle.

Economists polled by Reuters expect the consumer price index, to be released Wednesday morning, to have risen by 3.1% in June, after May's 4% increase. That would be the lowest reading since March 2021. The core rate is expected to have dropped for a third month to 5% from 5.3%, though that is more than double the Fed's 2% target.

Last week's employment report showed far fewer workers than expected had been added to non-farm payrolls last month, which unleashed U.S. dollar selling but did little to shift the needle in terms of rate expectations.

"(Market) movements, especially between the jobs report and inflation when they're so close together, I take with a relative pinch of salt," OANDA market strategist Craig Erlam said.

"There is a massive eye on tomorrow's inflation data - it comes too late in the day for the July meeting. That hike is basically sealed and it would take something pretty weak on the inflation side to change that," he said.

The Fed's next policy meeting will be on July 25-26.

Second-quarter earnings will also be watched this week with results due from some of Wall Street's biggest institutions, including JPMorgan, Citigroup and Wells Fargo.

Analysts expect earnings to have shrunk by 6.4% in the second quarter year-on-year, according to IBES data from Refinitiv.

FLAGGING DOLLAR

The dollar index, which measures the performance of the U.S. currency against a basket of others, ticked down 0.27% on the day to around its lowest in two months, in line with a retreat in U.S. Treasury yields.

Against the yen, the dollar dropped to a two-month low, down around 0.7%, while sterling hit a 15-month high after pay growth exceeded expectations.

Brown Brothers Harriman currency strategists wrote in a note on Tuesday that, despite recent pressure, "the fundamental story continues to favor the dollar...and markets are still seeing significant risks of a second Fed hike this year."

Longer-dated U.S. Treasury yields fell on Tuesday as investors awaited Wednesday's inflation data for further clues on whether price pressures are abating and if the Fed is closer to the end of its rate-hiking cycle.

The yield on the benchmark 10-year note was down 2.6 basis points to 3.980%, having broken below 4% the day before.

"While there is increasing evidence of near-term disinflationary trends, questions remain as to whether inflation will persist at uncomfortably high levels in the medium term," Deutsche Bank strategist Jim Reid said.

COMMODITIES

The prospect of a boost to the broader Chinese economy helped push up the price of crude oil and other industrial commodities such as copper and iron ore.

Chinese regulators on Monday extended some policies in a rescue package introduced in November to shore up liquidity in the real estate sector.

Oil prices jumped on Tuesday, settling up about 2%, boosted by a falling U.S. dollar, hopes for higher demand in the developing world and supply cuts by the world's biggest oil exporters. Brent crude, which has struggled to pull clear of 18-month lows, was at $79.31, up 2.09% on the day. U.S. crude rose 2.38% to $74.73 per barrel.

Gold prices scaled a near three-week high. Spot gold added 0.36% to $1,931.95 an ounce.

(Reporting by Lawrence Delevingne in Boston and Amanda Cooper in London; Additional reporting by Julie Zhu in Hong Kong; Editing by Christina Fincher, Barbara Lewis, Leslie Adler and Deepa Babington)