GLOBAL MARKETS-Wall St upbeat as easing inflation lifts hopes of smaller rate hike

Wall Street stocks jumped, Treasury yields fell and the dollar weakened on Tuesday as new U.S. government data showed the smallest annual increase in inflation in nearly a year.

Wall Street stocks jumped, Treasury yields fell and the dollar weakened on Tuesday as new U.S. government data showed the smallest annual increase in inflation in nearly a year. The consumer price index increased 0.1% last month after advancing 0.4% in October, the Labor Department said. Economists polled by Reuters had forecast the CPI gaining 0.3%.

The slowdown could give the Federal Reserve cover to start scaling back the size of its interest rate increases on Wednesday. "This month's report provides confirmation of October's step down in inflation pressures and is welcome news for the Fed," Morgan Stanley strategists wrote in a note on Tuesday morning.

"Tomorrow's reduction in the pace of tightening to 50 (basis points) was already telegraphed, and with the downtrend in inflation becoming entrenched, the FOMC can set its sights squarely on the labor market." Global stocks jumped on the news. The Dow Jones Industrial Average rose 1.2%, the S&P 500 gained 2.1% and the Nasdaq Composite added 3%.

The pan-European STOXX 600 index rose 2% and MSCI's gauge of stocks across the globe gained 2.28%. U.S. Treasury yields dropped sharply on the November inflation data.

The yield on 10-year Treasury notes was down 16.4 basis points to 3.449%; 30-year yields fell 10.5 basis points to 3.471%, and two-year yields, which typically move in step with interest rate expectations, dropped 21.8 basis points to 4.183%. The dollar also reacted, plummeting against the yen and euro.

The dollar fell against a basket of major currencies, down more than 1% on the day. It has lost nearly 6.5% in value so far in the fourth quarter, largely because investors believe U.S. inflation has peaked. The pound gained against dollar, up 1.1% to $1.2407, after data showed a rise in UK unemployment and an increase in wage growth that will keep Bank of England (BoE) policymakers on edge when they meet this week.

The Fed, European Central Bank and BOE are expected to raise rates by 50 basis points (bps), rather than the 75 bps hikes they delivered earlier in the year. COMMODITIES UP

Oil rallied for a second day, having jumped 2.5% on Monday, with U.S. crude up 2.16% to $74.75 per barrel and Brent at $79.76, up 2.27%. Gold, which is sensitive to shifts in U.S. inflation, also gained, with spot gold up 2.1% to $1,817.69 an ounce and U.S. gold futures up 1.26% to $1,803.00 an ounce.

In cryptocurrencies, bitcoin climbed around 4% to $17,861, and crypto-related stocks gained, even as FTX founder Sam Bankman-Fried was arrested and charged by the U.S. securities regulator with defrauding investors.