Banks lift stocks to record, U.S. yields up after data

NEW YORK (Reuters) - A gauge of major world markets climbed to a record on Wednesday and U.S. Treasury yields rose as a strengthening economic outlook and recent commentary by Federal Reserve officials increased expectations of an interest rate hike in March.

U.S. retail sales rose more than expected in January, while other data showed consumer prices recorded their biggest increase in nearly four years last month and a rise in manufacturing output.

The reports follow comments from U.S. Fed Chair Janet Yellen on Tuesday, which she repeated to the House of Representatives on Wednesday, that the central bank would probably need to raise rates at one of the upcoming meetings.

The economic data and Yellen’s comments heightened expectations of a March interest rate hike, with U.S. short-term interest rates futures implying a 31-percent chance of a 25 basis point rise at its March meeting versus 18 percent in the prior session.

“A year ago, if Janet Yellen had come out with the statement she made, the market would have freaked out, because the fundamentals were very soft,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

“Now, if the Fed raises rates, it’s not going to shake the world, because people are confident enough about the fundamentals.”

In addition, Boston Fed President Eric Rosengren, a long-time dove who last year switched tack and began pushing for tighter monetary policy said the central bank may need to raise interest rates a bit more aggressively than the thrice-per-year pace forecast by policymakers.

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Goldman Sachs raised its expectations that the Federal Reserve will hike interest rates in the first half of 2017 and J.P. Morgan brought forward its forecast of the next rate increase to May.

The prospect of higher rates pushed U.S. financial stocks .SPSY 0.7 percent higher on Wall Street for their fifth straight day and lifted the benchmark S&P 500 index .SPX to another record.

The Dow Jones Industrial Average .DJI rose 107.45 points, or 0.52 percent, to 20,611.86, the S&P 500 .SPX gained 11.67 points, or 0.50 percent, to 2,349.25 and the Nasdaq Composite .IXIC added 36.87 points, or 0.64 percent, to 5,819.44.

The S&P 500 scored its seventh straight advance, its longest winning streak in nearly four years.

MSCI's benchmark global equity index rose 0.7 percent to 444.22 points .MIWD00000PUS, after touching a record high of 444.29.

Europe's index of leading 300 stocks .FTEU3 closed up 0.4 percent to 1,465.05, its highest since December 2015, buoyed by bank earnings.

Benchmark U.S. Treasury yields US10YT=RR rose to a two-and-a-half week high of 2.524 percent after the data and were last down 9/32 in price to yield 2.5004 percent.

The U.S. dollar .DXY reversed course after touching a one-month high in the wake of the U.S. data as investors booked profits and was last down 0.19 percent against a basket of major currencies. The decline snapped a 10-session streak of gains for the greenback.

Oil prices eased after a choppy session as record high U.S. crude and gasoline inventories fed concerns about a glut. U.S. crude CLc1 settled down 0.2 percent at $53.11 and Brent LCOc1 closed down 0.4 percent to $55.75 a barrel.

Additional reporting by Noel Randewich,; editing by Clive McKeef and Nick Zieminski