Stocks climb, dollar sinks as Fed seen ending rate hikes

World stock markets rallied Thursday and the euro hit a 17-month dollar peak, after easing US inflation stoked hopes the Federal Reserve's long-running campaign of interest rate hikes could be near an end.

Asian and European equities bounded higher with London also shrugging off news of shrinking UK economic growth.

Wall Street stocks added to gains posted on Wednesday following the release of the soft inflation data, with more economic figures and corporate earnings reassuring investors.

Briefing.com analyst Patrick O'Hare said there is rising confidence that the US economy will avoid recession, that the Fed is close to being done raising rates, and that there will be a return to earnings growth in the second half of this year.

The European single currency soared above $1.12, a level last seen in February 2022, while oil prices firmed.

Sterling hovered at a 16-month peak above $1.31 as data showed the UK economy shrank just 0.1 percent in May.

"With inflation slowing down faster than expected, the Fed's tightening is producing the desired effect, and investors have started to price-in the end of the current hiking cycle," said ActivTrades analyst Ricardo Evangelista.

"The markets can now see a path for a soft landing of the US economy, with inflation being controlled without the country... entering a serious recession."

Traders already had a spring in their step this week on signs that the US central bank's monetary tightening measures were kicking in.

The mood brightened Wednesday when the US Labor Department said the consumer price index came in at 3.0 percent in June, the lowest annual rate since March 2021 and down from 4.0 percent in May. The Fed's target is two percent.

On Thursday, US data showed that wholesale prices, measured through the producer price index, ticked up by 0.1 percent last month, slightly less than expected.

Analysts also pointed out that, while showing signs of softness, the labor market was still robust and the economy remained in good health.

The broad-based S&P 500 rose nearly one percent to finish at 4,510.04, its highest close since April 5, 2022.

Asian stocks powered higher following the positive trading session on Wednesday on Wall Street, with Hong Kong climbing more than two percent and Tokyo over one percent.

Hong Kong's tech giants were among the Hang Seng Index's best performers on hopes that China's crackdown on the sector is near an end.

That optimism was boosted by state media reports that Premier Li Qiang met representatives from industry leaders including Alibaba and TikTok's Chinese counterpart Douyin on Wednesday.

Traders are also keeping watch for any statements out of Beijing after officials announced a series of pledges to support the struggling property sector and indicated other growth-boosting measures would be outlined.

Such expectations were boosted by data showing Chinese exports plunged more than 12 percent last month while imports were also sharply down.

New York - Dow: UP 0.1 percent at 34,395.14 (close)

New York - S&P 500: UP 0.9 percent at 4,510.04 (close)

New York - Nasdaq: UP 1.6 percent at 14,138.57 (close)

London - FTSE 100: UP 0.3 percent at 7,440.21 (close)

Frankfurt - DAX: UP 0.7 percent at 16,141.03 (close)

Paris - CAC 40: UP 0.5 percent at 7,369.80 (close)

EURO STOXX 50: UP 0.7 percent at 4,391.76 (close)

Tokyo - Nikkei 225: UP 1.5 percent at 32,419.33 (close)

Hong Kong - Hang Seng Index: UP 2.6 percent at 19,350.62 (close)

Shanghai - Composite: UP 1.3 percent at 3,236.48 (close)

Euro/dollar: UP at $1.1230 from $1.1129 on Wednesday

Dollar/yen: DOWN at 138.03 yen from 138.50 yen

Pound/dollar: UP at $1.3134 from $1.2988

Brent North Sea crude: UP 1.6 percent at $81.36 per barrel

West Texas Intermediate: UP 1.5 percent at $76.89 per barrel