Global stock index falls with bond yields, dollar after US inflation data

By Sinéad Carew and Marc Jones

NEW YORK/LONDON (Reuters) -A global index of stocks edged down and bond yields fell on Thursday after U.S. inflation data boosted bets on interest-rate cuts while the yen surged against the dollar, raising questions about whether Japan intervened to boost its currency.

U.S. Treasury yields dropped across the board after U.S. consumer prices unexpectedly slipped 0.1% in June after being unchanged in May, while the annual increase was the smallest in a year, reinforcing views that inflation was abating.

The report followed U.S. Federal Reserve Chair Jerome Powell's testimony to lawmakers on Capitol Hill that "more good data" would build the case for interest-rate cuts.

"The CPI print is the big macro driver today. Any way you look it's encouraging news. It's further evidence that basically gets the Fed across the finish line to that level of confidence to initiate rate cuts," said Garrett Melson, portfolio strategist at Natixis in Boston.

Despite the supportive data, Wall Street's two biggest indexes fell as investors rotated into lower-weighted interest-rate-sensitive sectors such as real estate and utilities and out of heavy-weight sectors such as technology, which has already rallied this year.

The interest-rate-sensitive small cap Russell 2000 index rallied more than 3%.

Since investors now believe that the Fed is ready to start cutting interest rates, Sam Stovall, chief investment strategist at CFRA Research suggested they are already placing their bets without having to "wait for them to actually do it."

The Dow Jones Industrial Average rose 32.39 points, or 0.08%, to 39,753.75. But the S&P 500 lost 49.37 points, or 0.88%, to 5,584.54 and the Nasdaq Composite lost 364.04 points, or 1.95%, to 18,283.41, with both snapping long winning streaks.

The benchmark S&P's decline followed six straight record-high closes while the Nasdaq's retreat on Thursday ended a seven-session streak of closing records.

MSCI's gauge of stocks across the globe fell 0.76 points, or 0.09%, to 824.01 after rising about 0.7% to a record high earlier in the day.

Europe's STOXX 600 index earlier closed up 0.6%.

In currencies, the dollar dropped, with the Japanese yen at one point gaining more than 2% against the greenback as traders priced in the likelihood of U.S. rate cuts.

The yen move was so steep that there was speculation about whether Japan had moved to shore up the currency, which fell last week to a 38-year low against the greenback.

Japan's TV Asahi, citing government sources, reported that Japanese authorities had intervened. But the country's top currency diplomat Masato Kanda said he was not in position to comment on whether authorities had intervened, according to a Jiji Press report.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.48% to 104.47. The euro was up 0.31% at $1.0864.

Against the Japanese yen, the dollar weakened 1.75% at 158.84.

And Sterling strengthened 0.51% at $1.291 after hitting an almost one-year high as comments from Bank of England policymakers and better-than-forecast GDP data led traders to reduce bets on an August rate cut in Britain.

In Treasuries, after the inflation data U.S. two-year to 10-year yields slid to their lowest since mid-March, while those on 20-year and 30-year bonds sagged to two-week troughs.

The yield on benchmark U.S. 10-year notes fell 7.4 basis points to 4.206%, from 4.28% late on Wednesday.

The 30-year bond yield fell 5.6 basis points to 4.4144% from 4.47% late on Wednesday.

The 2-year note yield, which typically moves in step with interest-rate expectations, fell 12 basis points to 4.513%, from 4.633% late on Wednesday.

In commodity trading, oil prices edged higher after the inflation data.[O/R]

U.S. crude settled up 0.6%, or 52 cents at $82.62 a barrel and Brent rose to $85.40 per barrel, up 0.4%, or 32 cents.

Spot gold, added 1.82% to $2,414.27 an ounce. U.S. gold futures gained 1.77% to $2,414.10 an ounce as the precious metal was bolstered by the prospect of rate cuts.

(Additional reporting by Sinéad Carew, Noel Randewich, Karen Brettell, Gertrude Chavez-Dreyfuss, Marc Jones in London, Tom Westbrook in Singapore; editing by David Evans, Chris Reese, Diane Craft and Rod Nickel)