GLOBAL MARKETS-Global shares rise after Fed meeting notes hint at future rate hikes

·4 min read

(Recasts after U.S. Fed meeting announcement, adds closing price of oil, market details)

* Wall Street rises on growth stocks

* U.S. dollar snaps two-day losing streak

By Elizabeth Dilts Marshall

NEW YORK, May 25 (Reuters) - Global shares rose on Wednesday after notes from the U.S. Federal Reserve's early May meeting showed a strong likelihood that the world's most powerful central bank will approve two more half-percentage-point rate hikes in coming months.

All participants at the Federal Reserve's May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation, which is at 40-year highs in the United States. They agreed inflation had become a key threat to the economy's performance and was at risk of racing higher without action by the U.S. central bank, minutes of the session showed.

This month's 50-basis-point hike in the Fed's benchmark overnight interest rate was the first of that size in more than 20 years, and "most participants" judged that further hikes of that magnitude would "likely be appropriate" at the Fed's policy meetings in June and July, according to the minutes.

Europe's STOXX 600 rose 0.63%, and MSCI's gauge of stocks across the globe gained 0.80% at 3 p.m. EDT (1900 GMT).

On Wall Street, the Dow Jones Industrial Average rose 212.13 points, or 0.66%, the S&P 500 gained 42.62 points, or 1.08%, and the Nasdaq Composite added 193.31 points, or 1.72%, as growth stocks rallied.

Investors still fear that rate hikes could bring the world's largest economy to a standstill.

Nicholas Colas, cofounder of DataTrek Research, said the U.S. markets, which have whipsawed in recent weeks, will bottom once the Fed indicates inflation has started to ease.

"The Fed is using stock prices as a primary tool in their fight against inflation," Colas wrote in a note Wednesday. "Lower stock prices tell companies to stop hiring so aggressively and feeding wage inflation. They also create a reverse wealth effect, which should curtail consumer spending."

The U.S. dollar index - which measures the currency against six major rivals - snapped a two-day losing streak to rise 0.305%, with the euro down 0.43% at $1.0688.

European bond markets were largely in a holding pattern, after European Central Bank chief Christine Lagarde gave her strongest hint yet that it will soon deliver its first interest rate hikes in over a decade.

DISLOCATION

New home sales in the United States fell 16.6% month-on-month in April, the largest decline in nine years, and new orders for U.S.-made capital goods rose less than expected in April.

The drop in capital goods orders pointed to some moderation in business spending on equipment early in the second quarter, and headwinds are growing from rising interest rates and tightening financial conditions.

The benchmark U.S. Treasury yields fell on Wednesday to 2.7559%, while the 2-year U.S. yield last rose slightly to 2.5101%.

Colin Asher, a senior economist at Mizuho, said the drop in bond yields in recent weeks showed how concerns about a global slowdown are now rising.

"In the first few months of the year, the focus was on surging inflation and now it's more of stagflation," he said, referring to the mix of no growth but still-high inflation.

Investors in Asia had remained similarly nervous about growth being impacted by the effects of persistent Chinese COVID-19 lockdowns, which threaten to undermine recent stimulus measures in the world's second-largest economy.

Emerging market stocks rose 0.19%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.25% higher, while Japan's Nikkei lost 0.26%. Australian and Korean shares rose 0.4% and the Taiwan Weighted Index and Hong Kong's Hang Seng advanced 0.8% and 0.2%, respectively.

Among the main commodities, spot gold prices fell 0.57% to $1,855.19 an ounce.

U.S. crude settled up 0.51% at $110.33 per barrel and Brent settled up 0.41% at $114.03 a barrel.

(Reporting by Elizabeth Dilts Marshall in New York Additional reporting by Marc Jones and Sujata Rao in London Editing by Kirsten Donovan, Peter Graff and Matthew Lewis)

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