NEW YORK (Reuters) - The dollar and U.S. government debt yields fell on Thursday while equity markets rallied after a modest rise in consumer prices in April eased concerns the Federal Reserve might raise interest rates more than expected this year.
The U.S. Labor Department said its Consumer Price Index rose 0.2 percent last month, less than forecasts for 0.3 percent, as a moderation in healthcare prices offset increases in the cost of gasoline and rental accommodations.
The dollar fell against the euro, the Japanese yen and a basket of other major currencies, while the Mexican peso <MXN=> and Brazilian real <BRL=> jumped more than 1 percent on the news.
Equity markets rose as the soft inflation data reduced the prospect of the Fed boosting rates three more times in 2018, instead of four that many in the market were forecasting.
Apple <AAPL.O> hit a record high at $190.37, with all 11 major S&P sectors posting gains.
Benchmark 10-year U.S. Treasury notes <US10YT=RR> rose 8/32 in price to push yields down to 2.964 percent after breaching 3 percent on Wednesday.
"Inflation is going to rise in year-over-year terms over the summer, but the rise remains moderate rather than sharp," said Eric Winograd, senior economist at AllianceBernstein LP.
The soft read on inflation should give the Fed comfort that their gradual approach to raising rates is the correct one and ease market concerns, he said.
"I view today's number as a slight positive for risk assets in the near term," Winograd said.
However, the broad-based Underlying Inflation Gauge released by staff at the New York Fed later in the session showed 12-month inflation at 3.2 percent in April.
"We did have a miss on CPI for this particular month, but I don't think the overall trend for higher inflation has materially changed," said Eddy Vataru, a portfolio manager at Osterweis Capital Management in San Francisco.
"With oil prices north of $70, it's hard for me to believe this is going to be a persistent trend of inflation misses," he said.
MSCI's broad gauge of global equity markets <.MIWD00000PUS> rose 0.84 percent and turned positive for the year as it hit three-weeks highs.
Apple <AAPL.O>, Chinese internet giant Tencent <0700.HK>, Exxon Mobil <XOM.N> and Microsoft <MSFT.O> led the index's advance, while the same stocks lifted Wall Street, with the exception of Tencent.
Emerging market stocks <.MSCIEF> rose 1.41 percent, after Asia-Pacific shares outside Japan and the Nikkei <.N225> in Tokyo both earlier closed higher.
The pan-European FTSEurofirst 300 index <.FTEU3> of leading regional shares closed down 0.13 percent, but markets in London <.FTSE>, Germany <.GDAXI> and France <.CAC40> closed higher.
On Wall Street, the Dow Jones Industrial Average <.DJI> rose 196.99 points, or 0.8 percent, to 24,739.53. The S&P 500 <.SPX> gained 25.28 points, or 0.94 percent, to 2,723.07 and the Nasdaq Composite <.IXIC> added 65.07 points, or 0.89 percent, to 7,404.98.
The British pound <GBP=D3> hit a four-month low versus the greenback after the Bank of England left key borrowing costs unchanged.
The recent softening in price growth among major economies has reduced expectations that most central banks other than the Fed will reduce their bond purchases or raise interest rates.
The dollar index <.DXY> fell 0.39 percent, with the euro <EUR=> up 0.61 percent to $1.1922. The Japanese yen <JPY+> firmed 0.31 percent versus the greenback at 109.43 per dollar.
Oil markets were choppy but settled higher as traders eyed further declines in Venezuelan crude production in tandem with bullish drawdowns in U.S. crude inventories.
Brent crude futures <LCOc1> rose 26 cents to settle at $77.47 a barrel, after hitting $78 earlier in the day, their highest since November 2014.
U.S. West Texas Intermediate <CLc1> crude futures settled up 22 cents at $71.36.
Gold rose on the weaker dollar and as tensions between the United States and Iran also supported the precious metal.
U.S. gold futures <GCcv1> for June delivery settled up $9.30 at $1,322.30 per ounce.
(Reporting by Herbert Lash; Editing by Nick Zieminski and Diane Craft)
