World equities hit record highs, US yields fall on optimism for Fed rate cut

By Chibuike Oguh

NEW YORK (Reuters) -An index of global equity markets rose to a record high for the second straight session on Wednesday, partly underpinned by bullish sentiment on Wall Street as investors positioned for a likely interest rate cut from the U.S. Federal Reserve.

The MSCI All Country World Index rose as high as 954.21, breaking another record a day after reaching a new peak. It was last up 0.60% at 952.83.

The benchmark S&P 500 and the Nasdaq Composite Index scored record highs for the second straight session, while the Dow Jones Industrial Average finished stronger. Among the S&P 500's 11 sectors, materials, healthcare and consumer discretionary stocks led gains while communication services, consumer staples and technology shares lost ground.

The Dow gained 1%, the S&P 500 rose 0.32% and the Nasdaq Composite added 0.14%. 

European stocks advanced 0.54%, almost reaching two-week highs, while Japan's Nikkei rose for the sixth straight day, breaking the 43,000 level for the first time and hitting a fresh high. MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.54%.

"It's largely just a continuation from what we saw yesterday, with inflation obviously being the driver of the rally," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions in Boston.

U.S. inflation readings, which on Tuesday showed the consumer price index rising slightly less than forecast in the year through July, indicated President Donald Trump's import tariffs had yet to filter down to consumer prices.

That helped Wall Street scale new heights, supported by the increasing likelihood that the Federal Reserve will cut interest rates next month. 

"It's hard to really glean any sort of trends from that report other than maybe just some noise. I think on the whole, it's better than feared and that was enough to kind of spur expectations that the Fed has kind of the green light to go in September," Melson added.

Traders are pricing in a nearly 94% chance of a Fed cut in September, up from about 57% a month ago, according to the CME FedWatch tool.

Also boosting market optimism was Trump's signing of an executive order pausing triple-digit levies on Chinese imports for another 90 days.

Treasury Secretary Scott Bessent said he thought an aggressive half-point cut was possible given recent Bureau of Labor Statistics revisions showing job growth had slowed to a crawl in May, June and July, though initial estimates had shown stronger employment growth that Fed officials used to argue that the labor market remained in good shape.

U.S. Treasury bond prices rose across the board, with the 2-year note yield, which typically moves in step with interest rate expectations for the Fed, dropping 5.2 basis points to 3.679%. The benchmark U.S. 10-year note yield fell 5.5 basis points to 4.238%.

The dollar weakened 0.32% to 147.36 against the Japanese yen and was down 0.12% to 0.805 against the Swiss franc. The euro <EUR=> was up 0.27% at $1.1704.

The dollar index, which tracks the greenback against a basket of major peers, fell for a second day to its lowest in two weeks. It was last down 0.25% at 97.79.

Oil prices fell ahead of Trump's meeting with Russian President Vladimir Putin.

Brent crude futures settled down 0.74% to $65.63 a barrel, while U.S. West Texas Intermediate crude futures fell 0.82% to settle at $62.65 a barrel.

Spot gold rose 0.34% to $3,356.49 an ounce.

(Reporting by Chibuike Oguh in New York and Tom Wilson in London; Additional reporting by Rocky Swift in Tokyo; Editing by Jacqueline Wong, Lincoln Feast, Kate Mayberry, Deepa Babington and Richard Chang)