GLOBAL MARKETS-Stocks, dollar gain as inflation data sends mixed signals

(Adds fresh prices, November PPI data)


U.S. producer prices increase in November


Stocks gain but rate hike worries remain


Crude prices set for 10% weekly loss

By Herbert Lash and Carolyn Cohn

NEW YORK/LONDON, Dec 9 (Reuters) - The dollar gained and stocks on Wall Street edged up on Friday after data on U.S. producer prices in November stirred hope inflation is moderating but also raised fears the Federal Reserve will need to keep interest rates higher for longer.

The producer price index (PPI) for final demand rose 0.3% last month and increased 7.4% in the 12 months through November, while the PPI for October was revised up to 0.3% from 0.2% as previously reported, the U.S. Labor Department said.

Economists polled by Reuters had forecast monthly PPI climbing 0.2% and rising 7.2% year-on-year.

While the data showed a moderating pace of inflation, it also raised concerns that next week's report on the consumer price index may indicate hotter-than-expected inflation and lead the Fed not to cut rates as soon as many anticipate.

Fed policymakers are expected to raise rates by 50 basis points next Wednesday to a range of 4.25% to 4.50%, a move that will mark a slower pace of rate increases.

"The Fed is going to have to raise interest rates a little bit more," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

"But the markets are overly optimistic that at some point between June and December (next year) the Fed is going to be willing to cut. Today's data shows that inflation is coming down, but it's lingering and is stickier than most assume."

U.S. stocks pared losses to trade little changed after the University of Michigan's preliminary reading on consumer sentiment showed an improvement to 59.1 in December from 56.8 the prior month.

Stocks on Wall Street later mostly edged higher. The Dow Jones Industrial Average fell 0.03%, but the S&P 500 gained 0.08% and the Nasdaq Composite added 0.19%.

In Europe, the broad STOXX 600 index rose 0.83%, while MSCI's gauge of stocks across the globe gained 0.40%.

Treasury yields mostly rose, suggesting higher rates ahead. But the two-year note, an indicator of future inflation expectations, slipped a bit, falling 0.3 basis points to 4.309%.

Market prices also showed a declining trend in breakeven inflation rates for U.S. Treasury Inflation-Protected Securities (TIPS), seen as a good leading indicator for future prices.

The two-year breakeven rate fell to 2.355% from 2.407% late Thursday, suggesting that investors expect inflation to average about 2.35% over the next two years.

The yield curve measuring the gap between yields on two- and 10-year notes, a recession harbinger, lessened too, at -76.2 basis points.

The dollar was broadly weaker overnight, but reversed some of its losses after the PPI report.

The euro fell 0.14% to $1.0541 and the yen strengthened 0.21% to 136.37 per dollar.

The world's largest investment banks expect global economic growth to slow further in 2023 following a year roiled by the Ukraine conflict and soaring inflation, which triggered one of the fastest monetary policy tightening cycles in recent times.

Investors sold stocks and bought gold in the week to Wednesday, withdrawing $5.7 billion from equity funds, BofA Global Research said, a week of "small, joyless flows."

In addition to the Fed, the European Central Bank and the Bank of England are also set to announce interest rate hikes next week as policymakers continue to put the brakes on growth to curb inflation.

Euro zone banks are set to repay early another 447.5 billion euros in multi-year loans from the ECB, bringing the total reduction of outstanding loans to nearly 800 billion euros in just a few weeks, the ECB said.

Oil prices rose but both benchmarks were set for a weekly loss as worries over a weak economic outlook in China, Europe and the United States weighed on oil demand.

U.S. crude recently rose 1.04% to $72.20 per barrel and Brent was at $76.90, up 0.98% on the day.

U.S. gold futures gained 0.24% to $1,793.00 an ounce.

(Reporting by Herbert Lash Additional reporting by Carolyn Cohn in London, Stella Qiu in Sydney Editing by Chizu Nomiyama and Mark Potter)