Wall St follows world stocks higher powered by AI, rate cut hopes

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks followed their European counterparts higher on Thursday and Treasury yields rose as soft economic data and central bank actions abroad set the stage for a dovish pivot from the Federal Reserve.

The artificial intelligence rally continued to lead the charge, with chipmaker Nvidia - which recently claimed the mantle as the world's most valuable company by market cap - rising 2.5%.

All three major U.S. stock indexes were green and the dollar inched higher in early trade.

Weaker-than-expected economic reports, including disappointing housing starts and building permits data, along with a jobless claims report suggested a gradual cooling in the labor market, appeared to make the case that the Fed's restrictive policy is having its intended effect.

"The weaker-than-expected economic data is suggesting that the higher-for-longer interest rates are achieving the Fed’s objectives," Greg Bassuk, chief executive officer at AXS Investments in New York, said. "These signs of a slightly slowing economy are going to be welcomed by the Fed as they consider a move toward interest rate cuts."

This, combined with dovish sentiment expressed by the Bank of England and the Swiss National Bank's interest rate cut, seemed to give the Fed some maneuvering room over the timing of its first interest rate cut.

"The move toward dovish sentiment by foreign central banks confirms not only that global interest rates have peaked, but importantly for investors, that rate cuts, including in the U.S., are on the near-term horizon," Bassuk added.

Minneapolis Federal Reserve President Neel Kashkari said while the U.S. economy has proven resilient, he sees some softening around the edges.

Even so, expectations for a rate cut as soon as September have faded a bit. Financial markets are currently pricing in a 57.9% chance of a 25-basis-point rate cut in September, down from 61.1% a week ago, according to CME's FedWatch tool.

The Dow Jones Industrial Average rose 84.8 points, or 0.22%, to 38,919.66, the S&P 500 gained 21.86 points, or 0.40%, to 5,495.09 and the Nasdaq Composite added 13.88 points, or 0.08%, to 17,876.12.

European shares were given a boost by tech and real estate, and by a rally in Swiss equities after the central bank continued to loosen monetary policy.

The pan-European STOXX 600 index rose 0.71% and MSCI's gauge of stocks across the globe gained 0.14%.

Emerging market stocks lost 0.04%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.13% lower, while Japan's Nikkei rose 0.16%.

U.S. Treasury yields initially backed away from their highs following the economic data, before resuming their climb.

Benchmark 10-year notes last fell 18/32 in price to yield 4.2847%, from 4.217% late on Tuesday.

The 30-year bond last fell 37/32 in price to yield 4.4221%, from 4.354% late on Tuesday.

The greenback inched higher against a basket of world currencies amid a busy day among world central banks.

The dollar index rose 0.18%, with the euro down 0.13% to $1.0728.

The Japanese yen weakened 0.40% versus the greenback at 158.74 per dollar, while Sterling was last trading at $1.2686, down 0.24% on the day.

Crude oil prices gained ahead of the Energy Information Administration's (EIA) release of inventory data, as escalating tensions in the Middle East exacerbated supply concerns.

U.S. crude rose 0.62% to $81.21 per barrel and Brent was last at $85.79, up 0.85% on the day.

Gold prices jumped to a two-week peak as rising rate cut bets gave a boost to demand.

Spot gold added 1.4% to $2,359.19 an ounce.

(Reporting by Stephen Culp; Additional reporting by Amanda Cooper and Marc Jones in London; Editing by Andrew Heavens)