GLOBAL MARKETS-Dollar rises on higher US inflation; Fed could be more hawkish

Tue Jun 17, 2014 2:05pm EDT

* Wall St shares inch up, as Fed decision awaited
    * Treasuries yields rise
    * Oil prices rise on fears of Iraq's impact on export

 (Recasts with views on Fed action; updates prices)
    By Michael Connor
    NEW YORK, June 17 (Reuters) - The dollar edged up and U.S.
Treasuries prices slipped on Tuesday as rising U.S. inflation
drove speculation that the Federal Reserve, which is meeting
this week, may raise interest rates sooner than global investors
have been expecting.
    Wall Street stocks rose modestly, reversing earlier
declines, though investors kept a watch on the turmoil in Iraq
as the Federal Reserve began its two-day policy meeting.
    Stocks on world markets were mixed, with European issues up
slightly, as new signs of possible takeover activity pushed up
shares of major healthcare and pharmaceutical companies.
    Oil traders, after initial calm on the absence of an
escalation in the Iraq crisis overnight, continued to push
prices higher.
    The U.S. Labor Department said its Consumer Price Index rose
0.4 percent last month. The gain was the largest since February
2013 and topped expectations for a 0.2 percent rise, following a
0.3 percent advance in April. 
    "It was a much stronger print than the market was expecting
and many are thinking that may lead to a more hawkish tone
tomorrow," said Michael Pond, head of global inflation-linked
research at Barclays in New York.
    Fed officials are expected to trim their bond-buying program
further at the conclusion of their meeting on Wednesday,
although the Fed is not expected to raise interest rates until
mid-2015. 
    The U.S. dollar rose, with the dollar index up 0.16
percent. Against the Japanese yen, the dollar was up 0.28
percent to 102.12 yen.
    "If the Fed decides to be less dovish, that could give a bid
to the dollar," said currency strategist Sebastien Galy at
Societe Generale in New York.
    U.S. Treasuries' prices fell on the CPI data, which analysts
said may give the Fed more confidence in quickening an end of
its ultra-low interest rate regime.
    Benchmark 10-year notes fell 12/32 in price to
yield 2.644 percent, up from 2.60 percent late on Monday.
Thirty-year bonds dropped 23/32 in price to yield
3.436 percent, up from 3.40 percent.
    The Dow Jones industrial average was up 1.35 points,
or 0.01 percent, at 16,782.36. The Standard & Poor's 500 Index
 was up 0.71 point, or 0.04 percent, at 1,938.49. The
Nasdaq Composite Index was up 11.76 points, or 0.27
percent, at 4,332.86. 
    Investors have been closely monitoring the situation in
Iraq, worried that it could lead to sharply higher oil prices 
for an extended period. Iraq's Shi'ite rulers defied Western
calls to reach out to Sunnis to defuse an uprising in the north
of the country. 
    "The Iraq situation could continue to destabilize markets,
and there are a lot of unknown factors that could keep oil
prices elevated. That said, valuations for stocks are not
alarmingly high, and there aren't many alternatives for
investors," said Bernard Baumohl, a managing director at the
Economic Outlook Group in Princeton, New Jersey.
    An index of European shares was up 0.3 percent,
while the MSCI index of world stock markets 
ahead 0.01 percent.
    Shire jumped 3.5 percent, for the biggest boost for
the FTSE 100, after sources told Reuters the healthcare
group has hired investment bank Citi as an adviser,
expecting to receive takeover approaches.
    Brent oil held steady above $113 per barrel on Tuesday as
fears that violence in Iraq could hit exports offset thawing
relations between Iran and the West that could boost that
nation's output. 
    Brent crude for August delivery was up 59 cents to
$113.63 per barrel. U.S. light crude was off 34 cents to
$106.57.
   Gold eased with the dollar's gains. U.S. gold futures'
most-active contract slipped $3.60 to $1,271.70 an
ounce.

 (Reporting by Michael Connor in New York; Editing by Leslie
Adler)
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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