By Herbert Lash and Simon Jessop

NEW YOR/LONDON (Reuters) – Global stocks surged and the dollar held steady on Thursday as investors took in their stride a spike in U.S. inflation that was higher than expected but not big enough to shake the Federal Reserve’s stance that rising consumer prices will be transitory.

MSCI’s all-country world index surged to a record intra-day high after the U.S. Labor Department earlier said the consumer price index in the 12 months through May accelerated 5.0%, the biggest year-on-year increase since August 2008.

The benchmark 10-year U.S. Treasury yield rose 3.0 basis points to 1.5194% after the data’s release, while the dollar index was essentially flat, down 0.08%.

An initial sell-off in bonds was muted and for the most part the CPI report was pretty much in line with expectations, said Subadra Rajappa, head Of U.S. rates strategy at Societe Generale in New York.

“The market is really buying into the narrative that the rise in inflation is in fact transient because you’re not seeing that necessarily being priced into fears in the bond market,” Rajappa said.

Many investors believe growth is going to slow, perhaps significantly, and will trump any acceleration in inflation, which is still going to be temporary, said Joseph LaVorgna, chief economist for the Americas at Natixis in New York.

“If it turns out the economy is weaker in the next three to six months than people think, it won’t even matter if inflation continues to surprise to the upside,” LaVorgna said.

“The (equity) market is going to ignore the data. It’s going to rally regardless,” he said.

On Wall Street, the Dow Jones Industrial Average rose 0.8%, the S&P 500 gained 0.67% and the Nasdaq Composite added 0.64%.

Risk assets have remained buoyant as central bankers on both sides of the Atlantic signaled their willingness to keep the monetary taps open until the post-pandemic recovery takes hold, believing inflationary pressures to be short-lived.

A surprisingly strong U.S. inflation print in April spooked some investors, leading to a cautious run into the release on Thursday of the May data.

With the euro zone lagging in the pace of its recovery from COVID-19, the European Central Bank maintained an elevated flow of stimulus as expected on Thursday.

Overnight, fixed income markets were the big movers, with some analysts pointing to a setback to more U.S. stimulus efforts, while others suggested a likely clearing out of short positions in U.S. government bonds ahead of the May CPI.

Short positions in Treasuries were the highest since 2018, according to JP Morgan positioning data last week.

(Additonal reporting by Swati Pandey in Sydney and Thyagu Adinarayan in London; Editing by Ana Nicolaci da Costa, Christopher Cushing, Angus MacSwan, Catherine Evans and Jane Merriman)