Stocks rise, 2-year US bond yield eases after soft US inflation data 

By Caroline Valetkevitch and Danilo Masoni

NEW YORK/MILAN, Sept 30 (Reuters) - Stocks on Wall Street and two-year US Treasury prices rose on Wednesday, pushing yields lower as expectations that the Federal Reserve will hike interest rates next month decreased after softer-than-expected inflation data.

Long-dated yields were still higher, however, as global bonds closed out their worst month in years. Fixed-income investors have had to reckon with a mix of deteriorating government finances, a glut of debt issuance and rising inflation as the seven-month-old US-Israeli war on Iran keeps energy costs elevated.

The 10-year US yield was on track for its biggest monthly increase since 2022. Bond yields rise as prices fall. 

Oil prices rose, keeping the commodity on track for significant monthly gains.

US inflation increased less than expected in August and price pressures were more moderate in the prior month than previously reported.

The market was lately pricing in a roughly 65% chance that the Fed will keep rates steady next month compared with a 55% chance before the inflation release, according to the latest data from LSEG. Earlier this month, the Fed raised rates for the first time since 2023 in an effort to combat inflation.

Despite a volatile month, the benchmark S&P 500 was on track to post a gain for September and for the quarter.

MSCI's gauge of stocks across the globe was lower for the month, however, having lost 0.8%. It was up 0.5% to 1,141.16 on Wednesday.

The US Personal Consumption Expenditures Price Index rose by 0.3% on a monthly basis, an acceleration from the 0.1% rate the previous month, and by 3.4% year-on-year. Economists had expected a 0.4% increase, according to consensus estimates.

"The PCE report today was under a microscope as participants try to get a handle on how aggressive the Fed needs to be with future rate increases," said Steve Wyett, chief investment strategist at BOK Financial. 

The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, fell 2.07 basis points to 4.868%, from 4.889% on Tuesday.

The yield on benchmark US 10-year notes was last up 1.7 basis points at 5.272%, from 5.255% on Tuesday. The 30-year bond yield rose to 5.6298% from 5.594%.

France's 10-year bond yield was set to post its biggest quarterly jump in nearly four decades and its biggest monthly rise in almost four years [GVD/EUR] The German 10-year yield was also up sharply for the month.

The rise in yields has been front-and-center for investors, as sovereign yields are an anchor for global markets, a reference price for investing in riskier assets like stocks and a benchmark for mortgages and corporate borrowing.

Data in Europe showed French consumer prices rising more than expected in September and Italy's annual EU-harmonised inflation rate accelerating to 4.1% amid soaring energy costs. 

The Dow Jones Industrial Average rose 30.02 points to 51,379.94, the S&P 500 rose 45.83 points, or 0.6%, to 7,716.67 and the Nasdaq Composite rose 273.34 points, or 1%, to 27,071.20.

The pan-European STOXX 600 index fell 0.4%.

Oil prices rose on stalled US-Iran peace talks and tightening US fuel markets. US crude rose 2.2% to $91.33 a barrel and Brent November futures were up $1.12, or 1%, at $103.71. Brent was headed for its biggest monthly gain since July.

The US dollar weakened after the inflation data. The euro was up 0.16% at $1.1358. Against the Japanese yen, the dollar weakened 0.08% to 157.15.

(Reporting by Caroline Valetkevitch in New York and Danilo Masoni in Milan; additional reporting by Reporting by Shashwat Chauhan and Tharuniyaa Lakshmi in Bengaluru and Rae Wee and Rocky Swift; Editing by Thomas Derpinghaus, Christian Schmollinger, Chizu Nomiyama and David Gaffen)