Stocks higher, dollar set for second straight weekly loss as investors eye Fed cut

By Chibuike Oguh and Amanda Cooper

NEW YORK, Dec 5 (Reuters) - Global shares gained on Friday, after key U.S. economic data solidified investor expectations of a Federal Reserve rate cut next week, a likelihood that weighed on the dollar and boosted gold.

Wall Street stocks finished higher and notched a second straight week of gains, with communication services, consumer discretionary, and technology leading the pack. Utilities, energy and healthcare stocks drove losses.

The Dow Jones Industrial Average rose 0.22%, the S&P 500 rose 0.19%, and the Nasdaq Composite rose 0.31%.

European stock markets finished little changed and secured a modest 0.41% gain for the week. MSCI's index of stocks across the globe edged up 0.06%, on track for the second straight session of gains.

FED CUT PRICED IN

In September, the Personal Consumption Expenditures (PCE) Price Index - which is the Fed's preferred inflation gauge - increased 0.3%, in line with analyst expectations. U.S. consumer spending increased marginally in September but eased from the prior month, suggesting a loss of momentum in the economy, according to U.S. Commerce Department data.

The report was delayed by a record 43-day government shutdown. 

In more recent data, U.S. consumer sentiment improved in early December, but worries about high prices and the labor market persisted, a University of Michigan survey showed.

The Fed is widely expected to cut interest rates by 25 basis points at the end of its policy meeting next week. Investors are pricing in a near 90% chance of a rate cut, according to the CME's FedWatch tool.

"The Fed has been so accommodative to markets - especially as it's telegraphing really well its rate cuts in advance - that these equities markets look in pretty good shape going into the end of the year," said Andrew Wells, chief investment officer at SanJac Alpha in Houston.

"The Fed will cut. I think there's very little question about that and it's priced in," Wells said.

In currency markets, the euro was flat at $1.645 against the dollar. The dollar was up 0.14% at 155.30 against the Japanese yen.

The dollar was down against major currencies after snapping a 9-day losing streak in the previous session. The greenback has been weighed down by Fed rate cut expectations. 

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, eased 0.10% to 98.98. It is set for a second straight week of losses.

BONDS IN FOCUS

Japanese government bonds have led a global debt selloff this week. Yields on 10-year JGBs have hit their highest point since mid-2007, while 30-year yields have hit record highs, after the Bank of Japan gave its strongest signal yet that rates were likely to rise this month.

"If they do proceed, that would take the policy rate up to 0.75%, the highest since 1995," said Jim Reid, a strategist at Deutsche Bank. 

"That’s led to a hawkish reaction among Japanese assets, with the yen strengthening 0.18% this morning against the U.S. dollar, whilst the Nikkei is down 1.29%," he said.

With the BOJ widely expected to deliver a rate rise just as the Fed resumes cutting, investors are buying the Japanese yen against the dollar as interest rates in the two countries edged toward each other. 

Traders frequently borrow the yen to then sell it and buy higher-yielding assets in dollars, like tech stocks or cryptocurrencies - a practice known as a carry trade. A stronger yen puts billions of dollars invested in this trade at risk.

The yield on benchmark U.S. 10-year notes rose 2.9 basis points to 4.137%. The two-year note yield, which typically moves in step with Fed rate expectations, rose 3.4 basis points to 3.565%.

COPPER SURGES

In commodities, benchmark copper futures hit an all-time high of $11,705 a metric ton earlier, after Citi upgraded its price forecast based on supply concerns and expectations for a Fed rate cut.

Brent crude futures rose 0.8% to settle at $63.75 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.7% to settle at $60.08. Gold fell 0.17% at $4,200.40 an ounce. Silver was up 2.25% at $58.41 an ounce.

(Reporting by Chibuike Oguh in New York; Additional reporting by Stella Qiu in Sydney; Editing by Joe Bavier, Aidan Lewis, Diane Craft and Daniel Wallis)