Global equity index, bond yields edge up with focus on inflation and Middle East

By Sinéad Carew and Johann M Cherian

Aug 26 (Reuters) - MSCI's global equities gauge barely rose on Wednesday after U.S. inflation data came in hotter than expected while investors waited for results from AI heavyweight Nvidia, and oil prices settled lower after a choppy session.

A senior Iranian source said on Wednesday that Iran and Oman are still working on the details of an agreement on the Strait of Hormuz, a vital energy conduit. Earlier, Iran's Revolutionary Guards said the two countries had agreed on how to share the waterway and its revenues. However, the Guards' spokesperson said the strait would not open unless the U.S. met Tehran's conditions.

Meanwhile, data showed annual U.S. inflation unexpectedly held steady in July and was well above the Federal Reserve's 2% target for the 65th straight month. Separate government data showed consumer spending decelerating modestly in July while personal incomes rose faster than inflation.

On Wall Street, the three main indexes closed slightly lower after the data.

"The market has been looking for a reason to pull back a little bit," said James Ragan, co-chief investment officer and director of investment management & research at D.A. Davidson. But he added that the data would be unlikely to lead to a rate change at the Fed's September meeting.

"The economy still looks pretty good. I wouldn't say there's anything in there that says the economy has accelerated so it's kind of more of the same," Ragan said.

Besides the data, Ragan pointed to Nvidia's earnings report due out after U.S. markets close, as a major focus for investors on Wednesday. Along with the chip maker's second-quarter numbers and financial guidance, he said they will be keenly focused on the company's commentary on financing of the AI spending boom.

The Dow Jones Industrial Average fell 113.52 points, or 0.21%, to 53,463.88, the S&P 500 fell 1.58 points, or 0.02%, to 7,675.70 and the Nasdaq Composite fell 21.10 points, or 0.08%, to 26,130.20.

MSCI's gauge of stocks across the globe rose 0.45 points, or 0.04%, to 1,150.06. Earlier, the pan-European STOXX 600 index finished close to flat, down 0.01%.

Trading in energy markets was choppy as investors monitored talks between Iran and Oman on the Strait of Hormuz and assessed a smaller-than-expected rise in U.S. crude stocks.

U.S. crude settled down 0.16%, or 13 cents, at $82.23 a barrel while Brent settled at $87.84 per barrel, down 0.84%, or 74 cents.

Oil's fluctuations also appeared to affect the bond market. U.S. Treasury yields edged higher after the inflation data while traders also monitored Middle East developments and weighed U.S. government plans to expand debt buybacks.

The yield on benchmark U.S. 10-year notes rose 0.75 basis points to 4.647%, from 4.639% late on Tuesday while the 30-year bond yield fell 0.58 basis points to 5.1682%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.74 basis points to 4.211%.

Odds that rates would stay steady rose to roughly 64% from 60.4% on Tuesday, while bets for a 25 basis point interest rate hike in September dropped to 36% from almost 40% the day before, according to CME Group's FedWatch Tool. However, rates are still expected to rise by year-end.

In currencies, the dollar was higher after the economic data slightly increased expectations among some investors for a rate hike.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.24% to 99.15, with the euro down 0.18% at $1.1653.

Against the Japanese yen, the dollar strengthened 0.12% to 159.35.

In precious metals, gold prices were lower after hitting their highest levels since mid-May on Tuesday.

Spot gold fell 1.32% to $4,595.33 an ounce. U.S. gold futures fell 0.65% to $4,607.80 an ounce.

(Reporting by Sinéad Carew in New York, Ankur Banerjee in Singapore and Johann M Cherian in Bengaluru; Editing by Lincoln Feast, Gareth Jones, Chris Reese and Deepa Babington)