NEW YORK -U.S. stocks rallied in a sharp rebound on Friday as investors set aside inflation worries and bought shares hammered by the week's volatility, with the shift back into riskier assets dragging on the dollar.
The jump in shares was in step with buoyant global stocks as investors put on the back burner concerns that rising prices could lead the U.S. Federal Reserve to raise interest rates sooner than expected and reduce the gush of cash that has propelled financial markets.
The Dow Jones Industrial Average climbed 1per cent, the S&P 500 jumped 1.5per cent, the most on any day since March 26, and the Nasdaq Composite leaped 2.3per cent, its biggest one-day rise in about two months.
The MSCI World Index, which tracks 50 markets, jumped 1.5per cent.
But some warned that investors may be too complacent if they ignore the dangers of accelerating price pressures.
"I don't see us off to the races," said Tim Ghriskey, chief investment strategist at Inverness Counsel, which manages about US$4 billion in assets. He said inflation risks are "real" and financial markets will likely be choppy for some time.
"You could buy (stocks) if you could sleep at night with the volatility, but I might have a slug of cash, too."
Indeed, even with Friday's strong recovery, U.S. stocks still notched their worst performances in nearly three months for the week. The S&P 500 lost 1.4per cent this week, while the Nasdaq shed 2.3per cent, declines not seen since Feb. 26.
Still, mega-cap growth stocks, which have been beaten down this week on concerns over their lofty valuations, surged, with shares in Apple Inc, Amazon.com Inc and Microsoft Corp ending up at least 1.9per cent each and Tesla Inc leaping 3.2per cent.
Fears of rising prices burst into the fore this week and spooked markets, and despite assurances from the Fed it does not expect to tighten policy anytime soon, some investors worry policymakers may be misjudging inflation risks.
That said, data released on Friday showed U.S. retail sales unexpectedly stalled in April as the boost from stimulus checks wore off, further bolstering arguments that the economic recovery was far from roaring, and that interest rate hikes are not imminent.
That appeared to calm markets, for now.
The U.S. dollar dropped as risk appetite recovered and the prospect of rate hikes occurring sooner faded (higher rates burnish the currency's appeal). Against a basket of six major currencies, the U.S. dollar index shed 0.5per cent to 90.312.
A softer dollar lifted the euro, which jumped 0.6per cent to US$1.21445.
The surprisingly muted retail sales report weighed on benchmark 10-year Treasury yields, which fell to 1.6335per cent. Two-year Treasury yields dipped to 0.1510per cent.
The drop in yields flattened the yield curve, an indicator of economic growth expectations, by a touch. The spread between two- and 10-year Treasury yields, which had widened earlier this week when investors were focused on inflation, narrowed to 148.3 basis points.
Pullbacks in the dollar and Treasury yields added to the appeal of non-yielding bullion, with spot gold up 0.9per cent at US$1,843.11 an ounce.
Oil prices also rebounded on Friday to claw back some of the losses seen the previous day as a weaker dollar increased the appeal of the commodity for holders of other currencies.
Brent crude jumped 2.5per cent to US$68.70 a barrel, and U.S. West Texas Intermediate crude climbed 2.4per cent to US$65.36 a barrel.
In cryptocurrencies, bitcoin recovered some ground after skidding 13per cent this week on reports of a regulatory probe into crypto exchange Binance, and after Tesla's chief executive, Elon Musk, said the carmaker would stop accepting the token as payment due to environmental concerns.
Bitcoin was up 1.9per cent at US$50,239.51, but was markedly below a record US$64,889.97 struck on April 14.
(Reporting by Koh Gui Qing in New York and Simon Jessop in London; Editing by Marguerita Choy, Mark Heinrich, Nick Zieminski and Jonathan Oatis)