(Updates prices and adds a quote)
* US stocks reversed course to rise, according to Federal Reserve statements
*Fed Chairman Jerome Powell said he expects to raise interest rates this year
* European and Asian stocks rebound
US Treasury yields fall from two-year highs
Written by Koh Gui Ching
NEW YORK (Reuters) – U.S. stocks rebounded and Treasury yields fell on Tuesday in volatile trading as investors digested comments from the Federal Reserve that interest rates are likely to rise this year as expected.
In comments to US lawmakers, Federal Reserve Chair Jerome Powell said he expects the Fed to raise interest rates and end its asset purchases this year, but the central bank has made no decision on the timing of monetary policy tightening.
“We know high inflation has a negative impact,” Powell said, and pledged to use the full range of federal policy tools “to prevent high inflation from becoming entrenched.”
By mid-afternoon, the Dow Jones Industrial Average was up 0.27%, the S&P 500 was up 0.57%, and the Nasdaq Composite was up 1.12%.
The Pan-European STOXX 600 Index is up 0.84% and the MSCI gauge of stocks worldwide is up 0.72%.
“Comments from Federal Reserve Chairman Jerome Powell reassured investors that the Fed is ready to tighten monetary policy to maintain price stability,” analysts at Australia’s ANZ Bank said in a note.
Inflation pressures prompted the Federal Reserve in December to announce plans to tighten policy faster than expected, and possibly raise interest rates in March, although that was before it became clear how quickly the Omicron coronavirus could spread.
Some investors were relieved that the Fed didn’t sound more hawkish than the market had expected in its recent comments, and that helped Treasury yields pull back from the two-year highs hit earlier.
Benchmark 10-year Treasury yields slipped to 1.748%, after hitting a nearly two-year high above 1.8% overnight.
The two-year Treasury yield, which is considered highly sensitive to interest rates, fell to 0.8966%, down from a high of 0.945% last seen in February 2020.
The impact of the recovery in risk appetite on the dollar. The dollar index, which measures the currency against a basket of six major currencies, fell 0.32% to 95,649. Dollar weakness sent the euro up 0.3% to $1.13645.
Dollar weakness benefited from bullion, and spot gold rose 0.6% to $1,811.45 an ounce. US gold futures rose 0.39% to $1,805.40 an ounce.
US consumer inflation data for December will be released on Wednesday as the headline CPI is expected to reach 7% y/y, strengthening the case for higher interest rates sooner rather than later.
“We continue to believe that a March rate hike is increasingly likely. How these discussions are settled will likely have implications for interest rate increases after the takeoff,” Nomura economists said in a report, referring to US monetary policy, referring to monetary policy. American.
“In particular, we believe that comments about early runoff and less sharp rate increases support our view that the Fed will slow the pace of rate hikes to twice a year in 2023.”
Oil rose to nearly $82 a barrel, buoyed by tight supply and hopes that rising coronavirus cases and the spread of the Omicron variable will not derail a recovery in global demand.
US crude recently rose 3.82% to $81.22 a barrel, and Brent crude recorded $83.72, up 3.52% on the day.
Strong risk appetite supported bitcoin, which rose 2.05% to $42705.02, after falling below $40,000 the previous day for the first time since September.
(Reporting by Karen Stroecker, Sujata Rao and Tommy Wilkes in London and Anshumman Daga in Singapore; Editing by David Goodman, Gareth Jones and Mark Heinrich)