By Stephen Culp

NEW YORK (Reuters) – Wall Street stocks rose sharply higher on Friday and the dollar softened as cooler-than-expected inflation data helped investors look past the looming possibility of a government shutdown and fresh tariff threats from U.S. President-elect Donald Trump.

Gold surged and benchmark U.S. Treasury yields eased back from multi-month highs.

A report from the Commerce Department showed the PCE price index, the Federal Reserve’s preferred inflation yardstick, came in cooler than analysts expected, supporting the narrative that price growth remains on a path toward achieving the U.S. central bank’s 2% target.

“The big headline today is you know the PCE, which was reported at lower inflation level than expected and that’s good news,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York.

Equity markets came under pressure throughout a busy week for central banks, led by the U.S. Federal Reserve which signaled it would slow the pace of interest rates in the coming year.

Adding to the uncertainties, lawmakers in Washington were scrambling to reach an agreement to raise the nation’s debt ceiling and avert a partial government shutdown.

“The focus of the market over the last several days has been on the Fed’s announcement that while they were lowering interest rates by 25 basis points, that they were going to begin to rein (future rate cuts) in, and it certainly shook the markets,” Ghriskey added. “The potential government shutdown is the other big focus. Markets never like that.”

For the week, the S&P 500 and the Nasdaq were on course for their steepest weekly percentage declines since September, while the blue-chip Dow appeared set for its largest Friday-to-Friday drop since March 2023.

The Dow Jones Industrial Average rose 510.48 points, or 1.22%, to 42,852.72, the S&P 500 rose 68.42 points, or 1.17%, to 5,935.79 and the Nasdaq Composite rose 223.90 points, or 1.16%, to 19,596.67.

European stocks slid, setting a course for their worst week in three months as U.S. President-elect Donald Trump’s comments about potential tariffs on the European Union spooked investors.

MSCI’s gauge of stocks across the globe rose 5.39 points, or 0.63%, to 844.80.

The STOXX 600 index fell 0.81%, while Europe’s broad FTSEurofirst 300 index fell 17.94 points, or 0.90%.

Emerging market stocks fell 8.93 points, or 0.83%, to 1,072.83. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 1.09%, to 566.31, while Japan’s Nikkei fell 111.68 points, or 0.29%, to 38,701.90.

Treasury yields pulled back after cooler-than-expected inflation data bolstered expectations for two more rate cuts from the Federal Reserve in the coming year.

The yield on benchmark U.S. 10-year notes fell 6 basis points to 4.51%, from 4.57% late on Thursday.

The 30-year bond yield fell 3.6 basis points to 4.7053% from 4.741% late on Thursday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 2.6 basis points to 4.293%, from 4.319% late on Thursday.

The dollar softened against a basket of world currencies, but remained on track for its third consecutive weekly advance.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.41% to 107.99, with the euro up 0.4% at $1.0403.

Against the Japanese yen, the dollar weakened 0.55% to 156.56.

Bitcoin pared its losses in the wake of the inflation data.

In cryptocurrencies, bitcoin gained 0.08% to $97,370.00. Ethereum declined 0.75% to $3,390.10.

Oil prices dipped over concerns about weakening demand in 2025, particularly in China, the world’s top oil importer.

U.S. crude fell 0.17% to $69.27 a barrel and Brent fell to $72.78 per barrel, down 0.16% on the day.

Gold surged after the inflation report but still appeared set for a weekly loss.

Spot gold rose 1.33% to $2,628.21 an ounce. U.S. gold futures rose 1.01% to $2,618.50 an ounce. (This story has been refiled to amend the headline to more closely reflect market moves)

(Reporting by Stephen Culp; Additional reporting by Iain Withers in London, Editing by William Maclean)

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