GLOBAL MARKETS-World stocks hit highest in a week as inflation scare fades

* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh

By Ritvik Carvalho
LONDON, March 11 (Reuters) - World stocks rose to their
highest in just over a week on Thursday after a report on U.S.
consumer prices calmed investor nerves about inflation and
lifted the Dow Jones Industrial Average to a record close.
European stocks climbed, with the pan-European STOXX 600
index reaching a one-year peak and up 0.2% on the day. France's
CAC 40 index rose 0.14% .FCHI , and Italy's FTSEMIB .FTMIB
0.8%%. Britain's FTSE 100 index fell 0.36% .FTSE and Germany's
DAX .GDAXI traded flat. .EU
MSCI's All Country World Index, which tracks stocks across
49 countries, rose to its highest in just over a week, up 0.7%
on the day. .MIWD00000PUS
Earlier in Asia, an index of regional stocks excluding Japan
.MIAPJ0000PUS rose 1.78%, led by a 2.3% surge in South Korea's
Kospi .KS11 , and was on track for its first three-day advance
in three weeks.
China's Shanghai Composite .SSEC rallied 1.9%, helped by
local lending data. Japan's Nikkei 225 .N225 gained 0.5%.
E-mini futures for the U.S. S&P 500 index gained to their
highest in two weeks, up 0.7% ESc1 .
Relative calm in the Treasuries market also helped risk
sentiment, with the benchmark yield settling as low as 1.4750%
after shooting to a one-year high above 1.6% last week as
investors worried the U.S. economic recovery would run too hot.
"If we look at history, we see that when yields have gone
up, after a while equity markets have generally been okay," said
Justin Onuekwusi, portfolio manager at Legal & General
Investment Management. "The only time you really see both
equities and bonds sell off is in periods when there is a
significant inflation scare."
At this point ,with unemployment still so high, it is hard
to see inflation becoming a problem, Onuekwusi said. Higher
yields could be read as showing "that we are actually getting
out of the quagmire we have been in."
"And there is a natural yield cap -- central banks will
step in when rates move too quickly. They are differentiating
between levels of yield and speed at which yields move."
The European Central Bank sets its policy on Thursday and is
likely to signal faster money printing to keep a lid on
borrowing costs but stop short of adding firepower to its
already aggressive pandemic-fighting package. The U.S. Labor Department said its consumer price index rose
0.4% in February, in line with expectations, after a 0.3%
increase in January. Core CPI, which excludes volatile food and
energy components, edged up 0.1%, just shy of the 0.2% estimate.
Analysts largely expect inflation to pick up as vaccine
rollouts lead to a reopening of the economy, but worries persist
that additional stimulus in the form of a $1.9 trillion
coronavirus relief package set to be signed by U.S. President
Joe Biden could overheat the economy. Investors will now eye an auction of 30-year debt on
Thursday, seeking to cover massive shorts. A weak seven-year
auction in late February helped fuel inflation concerns and sent
yields higher. "Rises in U.S. bond yields appear to have subsided a bit
after the 10-year yield has reached 1.5%, even though many
investors remain cautious before the Fed's policy meeting," said
Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset
Management.
"The Fed has ratcheted up its rhetoric on bond yields
lately. The reality is, the economy is in a K-shaped recovery,
with the service sector still in difficult conditions and the
Fed would probably not want to let real interest rates rise."
The dollar remained weaker following the economic data. The
dollar index =USD fell to its lowest in a week, 91.547.
The euro, on the other hand, rose to its highest in a week,
at $1.19685 EUR= . The safe-haven yen traded flat at 108.425
per dollar JPY= . FRX/
Oil prices resumed their climb following two days of
declines, after the Energy Information Administration reported a
storage grew more than expected. O/R
U.S. crude futures CLc1 rose 0.7% to $64.94 per barrel.
Brent crude futures LCOc1 rose 0.8% to $68.46 per barrel.

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