NEW YORK/TOKYO, April 1 (Reuters) - Gold prices hit fresh all-time peaks on Monday but stocks on Wall Street slid from near-record highs, with optimism that the Federal Reserve was close to cutting interest rates fading as a strong U.S. economy rebuts the need for cuts anytime soon.
Chinese shares led a rally around most of Asia overnight amid a broadly optimistic global economic backdrop, while the dollar rose after data showed the U.S. manufacturing sector grew in March for the first time since September 2022.
What had been an optimistic reading of key U.S. inflation last week soon darkened as the market weighed the strength of the U.S. economy versus the need for immediate rate cuts.
The three government measures of U.S. inflation – CPI, PPI and PCE – show improvement has leveled off, leading to questions about when and by how much the Fed cuts, said Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.
"The markets are reassessing what they thought was going to be a very aggressive rate cut episode at least this year, could very well not be," Flanagan said.
"Whether they go in June or July, whatever, what is it going to look like? Right now, the data would be showing you that it's not going be uniform."
Oil prices stayed near five-month highs as markets expect tighter supply due to OPEC+ cuts and after attacks on Russian refineries, with Chinese manufacturing data supporting a stronger demand outlook.
The dollar index, a measure of the U.S. currency against major six peers, rose 0.49%.
The Dow Jones Industrial Average fell 0.66%, the S&P 500 lost 0.26% and the Nasdaq Composite added 0%.
European markets were closed on Monday and most markets across the globe were closed on Friday.
Fed Chair Jerome Powell said on Friday that inflation data released that day "is what we were expecting" and that "you won't see us over-reacting," suggesting the U.S. central bank is content to remain in wait-and-see mode.
Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, said the Fed does not want to relive the 1970s when it cut too soon and inflation reignited.
"The potential for a cut keeps getting pushed off because Powell says almost with a giddy tone that this is a great environment. Interest rates are above average, not wildly above, but above average.
"We don't have to cut them because the economy is doing so well," he said. "It's better to keep those cuts in your pocket."
Friday's report on personal consumption expenditures (PCE) price index data earlier drove expectations for easier U.S. monetary policy, lifting gold to a fresh record high.
Gold pared gains as the dollar and bond yields rose. Gold prices tend to move inversely with interest rates because as rates rise, gold becomes relatively less attractive.
Spot gold hit an all-time high of $2,265.49 an ounce earlier in the session. U.S. gold futures settled 0.9% higher at $2,236.50 an ounce.
U.S. Treasury yields rose as the stronger-than-expected manufacturing data raised doubts on whether the Fed can deliver on the three interest rate cuts outlined in its forecast at its last policy meeting.
The two-year Treasury yield, which reflects interest rate expectations, rose 9.4 basis points to 4.714%, while the yield on the benchmark 10-year note was up 13.3 basis points at 4.327%.
Japanese shares tumbled with the yen pinned near levels that kept traders on guard for a currency intervention. The yen loitered below 152 per dollar, keeping traders on edge over the threat of intervention.
Japan's Nikkei tumbled 1.4% as of the close, weighed down by worries about yen-buying intervention that would hurt exporter profit outlooks and returns for foreign investors.
Brent rose 42 cents to settle at $87.42 a barrel, while U.S. crude settled up 54 cents to $83.71 a barrel.