Banks boost stocks, U.S. yields up after data

By Chuck Mikolajczak

NEW YORK (Reuters) - Stocks on major world markets climbed on Wednesday and U.S. Treasury yields rose after a batch of U.S. economic data and recent commentary by Federal Reserve officials increased expectations of an interest rate hike in March.

U.S. retail sales rose more than expected in January, while other data showed consumer prices recorded their biggest increase in nearly four years last month and manufacturing output steadily rising.

The reports come on the back of comments from U.S. Fed Chair Janet Yellen on Tuesday, which she repeated to the House of Representatives on Wednesday, that the central bank would probably need to raise rates at one of the upcoming meetings.

The economic data and Yellen's comments heightened expectations of a March interest rate hike, with U.S. short-term interest rates futures implying a 27-percent chance of a 25 basis point rise at its March meeting.

"She (Yellen) has made it clear that she wants to raise rates," said Neil Massa, senior equity trader at Manulife Asset Management in Boston.

"Before she spoke yesterday, the March meeting wasn't in play, but now that is definitely on the table and I think the numbers today bode well for her to do that."

In addition, Boston Fed President Eric Rosengren, a long-time dove who last year switched tack and began pushing for tighter monetary policy said the central bank may need to raise interest rates a bit more aggressively than the thrice-per-year pace forecast by policymakers.

Goldman Sachs raised its expectations that the Federal Reserve will hike interest rates in the first half of 2017 and J.P. Morgan brought forward its forecast of the next rate increase to May.

The prospect of higher rates pushed U.S. financial stocks <.SPSY> 0.8 percent higher on Wall Street for their fifth straight day and lifted the benchmark S&P 500 index to another record.

The Dow Jones Industrial Average rose 92.92 points, or 0.45 percent, to 20,597.33, the S&P 500 gained 8.33 points, or 0.36 percent, to 2,345.91 and the Nasdaq Composite added 25.00 points, or 0.43 percent, to 5,807.58.

MSCI's benchmark global equity index rose 0.57 percent to 443.64 points , just below its intraday record of 443.98 set in April 2015.

Europe's index of leading 300 stocks closed up 0.4 percent to 1,465.05, its highest since December 2015, buoyed by bank earnings.

Benchmark U.S. Treasury yields rose to a two-and-a-half week high of 2.524 percent after the data and were last down 11/32 in price to yield 2.5076 percent.

The U.S. dollar reversed course after touching a one-month high in the wake of the U.S. data and was last down 0.06 percent against a basket of major currencies. The greenback had advanced for eleven straight session before weakening on Wednesday.

U.S. crude edged down 0.04 percent at $53.18 and Brent shed 0.23 percent to $55.84 a barrel as record high U.S. crude and gasoline inventories fed concerns about a glut.

(Reporting by Chuck Mikolajczak; editing by Clive McKeef and Nick Zieminski)