By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON (Reuters) -A global equities gauge rallied on Wednesday while U.S. Treasury yields fell after data showed core U.S. inflation rose less than expected in December, raising hopes that the Federal Reserve could ease rates further.

Oil prices rallied with support from a large draw in U.S. crude stockpiles and potential supply disruptions from new U.S. sanctions on Russia. But oil gains were limited as U.S. and Qatar said negotiators reached a deal to end the war in Gaza between Israel and Hamas, after 15 months of bloodshed.

Earlier, U.S. Bureau of Labor Statistics data showed the consumer price index (CPI) rose in line with expectations at an annual rate of 2.9% in December, from November’s 2.7%.

But core inflation, which excludes food and energy prices, rose by 3.2%, which was below forecasts for 3.3%.

Investors were particularly encouraged by the latest inflation reading since data released on Tuesday showed that U.S. producer prices increased moderately in December.

“You have back-to-back readings of inflationary data that clearly suggest we’re in maybe a little bit better shape than was being talked about,” said Phil Blancato, chief market strategist at Osaic Wealth in New York.

“The market, which has been starving for some piece of good news really since after the election, has gotten something that’s a bit of a shot in the arm here, putting some sugar back in the punch bowl,” said Blancato, noting that earlier data and Fed comments had implied “inflation was turning sideways, if not heating up again.”

After Wednesday’s release, traders were pricing close-to-even odds the Fed would cut interest rates twice by the end of this year, with the first reduction to come in June.

Adding to Wednesday’s upbeat tone were bumper fourth-quarter results from the likes of JPMorgan, which reported its biggest annual profit on record, top asset manager BlackRock, which logged a record $11.6 billion in assets, and Goldman Sachs, whose profit more than doubled in the final three months of 2024.

On Wall Street, all three major indexes registered their biggest daily percentage gains since Nov. 6, the day after the U.S. presidential election.

The Dow Jones Industrial Average rose 703.27 points, or 1.65%, to 43,221.55, the S&P 500 rose 107.00 points, or 1.83%, to 5,949.91 and the Nasdaq Composite rose 466.84 points, or 2.45%, to 19,511.23.

MSCI’s gauge of stocks across the globe rose 12.79 points, or 1.53%, to 847.20, putting it on track for its biggest one-day percentage gain since Sept. 19. Earlier, Europe’s STOXX 600 equity index had finished up 1.33%.

The U.S. dollar pared earlier losses but was still down against a basket of currencies after the data. Japan’s yen was boosted also by traders pricing in a 70% chance the Bank of Japan would raise interest rates in January after Governor Kazuo Ueda said policy-makers would discuss such an option next week.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,

fell 0.08% to 109.11.

The euro was down 0.16% at $1.029 while against the Japanese yen, the dollar weakened 0.91% to 156.52. Sterling strengthened 0.16% to $1.2237.

After the peace deal, the dollar was down 0.47% against the Israeli shekel in active trading.

In fixed income, U.S. Treasury yields fell after the inflation data implied that a 2025 rate hike, which some investors had entertained, was off the table for now. When, or by how much, the Fed might cut was still up for debate, however.

The yield on benchmark U.S. 10-year notes fell 13.5 basis points to 4.653%, from 4.788% late on Tuesday. The 30-year bond yield fell to 4.8774% from 4.985%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 9.7 basis points to 4.268%, from 4.365% late on Tuesday.

In energy markets, U.S. crude settled up 3.28% at $80.04 a barrel and Brent settled at $82.03 per barrel, up 2.64% on the day.

Spot gold rose 0.67% to $2,695.21 an ounce. U.S. gold futures rose 1.12% to $2,707.60 an ounce.

(Reporting by Sinéad Carew, Caroline Valetkevitch, Medha Singh, Amanda Cooper, graphic by Stephen Culp; Editing by Kirsten Donovan, Nick Zieminski and Matthew Lewis)

---