LONDON — Tame U.S. inflation figures supported stocks Friday despite mounting concerns over rising interest rates in Europe and China, while the euro was undermined by worries Greece will have to restructure its massive debts.
Figures Friday reinforced market expectations that while the European Central Bank and the People's Bank of China will again raise interest rates to counter rising inflation, the U.S. Federal Reserve is unlikely to join them.
The prospect of higher interest rates in China and the 17-country eurozone had weighed on markets for much of the day but news that inflation in the U.S. remains subdued helped turn sentiment around. Higher interest rates, though often necessary to keep a lid on inflation, are potentially bad for growth by making it more expensive for businesses to borrow, for example.
Though the headline U.S. inflation rate increased to 2.7 percent in the year to March, its biggest increase since December 2009, investors were encouraged by the news that the core rate, which strips out volatile components such as energy, slipped back to a monthly rate of 0.1 percent in March from 0.2 percent the previous two months. That suggests that big oil and commodity price rises are not feeding through into the wider economy just yet.
"The Fed majority will take some comfort from this ostensibly benign reading," said Marc Ostwald, markets strategist at Monument Securities.
A dip in long-term inflation expectations, as assessed by the University of Michigan in its monthly consumer confidence report, reinforced the view that U.S. interest rates will remain super-low for months to come.
In Europe, the FTSE 100 index of leading British shares closed up 0.5 percent at 5,996.01 while Germany's DAX rose 0.4 percent to 7,178.29. The CAC-40 in France ended up 0.1 percent at 3,974.48.
In the U.S., stocks performed better than futures markets had predicted — the Dow Jones industrial average was up 0.4 percent at 12,330 while the broader Standard & Poor's 500 futures rose 0.4 percent to 1,320.
The euro failed to make more gains on expectations of rising interest rates from the ECB as the currency was dogged by concerns that bailed-out Greece will have to restructure its debts. Another credit rating downgrade of Ireland by Moody's also stoked concerns that Europe's debt crisis still has a way to play out.
By late afternoon London time, the euro was 0.5 percent lower on the day at $1.4450.
"The eurozone debt and banking crisis is back on the agenda and it looks as if EU policymakers will be eventually forced to consider debt restructuring as well as bank recapitalisation otherwise the problem will continue to fester," said Neil MacKinnon, global macro strategist at VTB Capital.
Those concerns have not hit the euro too hard over the past few weeks, as investors have been more focused on the ECB's interest rate policy. Earlier this week, it jumped above $1.45 for the first time in 15 months.
Earlier in Asia, Hong Kong's Hang Seng Index fell less than 0.1 percent to close at 24,008.07.Comment on this story
Despite the inflation figures, China's Shanghai Composite Index staged a late rally to finish 0.3 percent higher at 3,050.53.
Japan's Nikkei 225 stock average fell 0.7 percent to end at 9,591.52 while South Korea's Kospi ended down less than 0.1 percent to close at 2,140.50.
Benchmark oil for May delivery rose $1.13 to $109.24 a barrel in electronic trading on the New York Mercantile Exchange.
Kelvin Chan in Hong Kong contributed to this report.