GLOBAL MARKETS-U.S. inflation rise boosts dollar, Treasury yields; stocks mixed

Tue Jun 17, 2014 11:51am EDT

* U.S. inflation pickup drives dollar gains
    * Treasuries yields, oil prices, rise
    * World stock markets mixed as Fed policymakers meet

 (Adds New York open, U.S. inflation report; changes dateline;
previous LONDON)
    By Michael Connor
    NEW YORK, June 17 (Reuters) - The dollar and U.S. Treasuries
yields rose on Tuesday after a report showed U.S. consumer
prices climbed in May at their strongest pace in a year.
    Stocks on world markets were mixed, with European issues up
slightly, fueled by corporate merger and acquisition
speculation. Wall Street was flat as Federal Reserve
policymaking officials gathered for a two-day meeting.
    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. 
    The uptick should comfort some Fed officials, who worry
inflation is running too low. Still, a separate inflation gauge
watched closely by the Fed continues to run below the central
bank's 2 percent target.
    "It was a much stronger print than the market was expecting
and many are thinking that 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 on the CPI data, with the dollar index
 up 0.17 percent.
    "If the Fed decides to be less dovish, that could give a bid
to the dollar," said Sebastien Galy, currency strategist 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 extremely low interest rate regime.
    Benchmark 10-year notes fell 12/32 in price to
yield 2.6405 percent, up from 2.60 percent late on Monday.
Thirty-year bonds dropped 25/32 in price to yield
3.44 percent, up from 3.40 percent.
    Wall Street was flat. 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. 
    An index of European shares was up 0.3 percent,
while the MSCI index of world stock markets 
slipped 0.03 percent.
    Oil prices initially steadied as U.S. and Iranian officials,
in a rare sign of rapprochement, discussed the Iraq crisis on
the sidelines of a nuclear conference in Vienna, although they
both ruled out military cooperation to face down the Sunni
militant onslaught that threatens to break up Iraq.
 
    But prices resumed their climb, with Brent crude for August
delivery up 73 cents to $113.67 per barrel. U.S. light
crude gained 22 cents to $107.12.

 (Reporting by Michael Connor in New York; Editing by Dan
Grebler)