* US CPI rose 0.8% in April vs 0.2% forecast
* S&P 500 in biggest one-day decline in 2-1/2 months
* U.S. Treasury yields jump on inflation data
* Expectations of rising real rates boost dollar
* World FX rates https://tmsnrt.rs/2RBWI5E
By Koh Gui Qing
NEW YORK, May 12 (Reuters) - U.S. stocks slumped on
Wednesday and benchmark Treasury yields jumped after data showed
consumer prices unexpectedly rose by the most in nearly 12 years
in April, prompting bets on earlier interest rate hikes.
Moments after data showed the U.S. consumer price index
jumped 0.8% last month, outpacing a 0.2% forecast, the dollar
spiked, and by midday had further extended its gains as
expectations of rising real interest rates lifted the currency.
The gyrations in financial markets underscored concerns
among some investors that the Federal Reserve could be wrong in
its prediction that inflation pressures in the United States are
"transitory", and that the central bank may have to raise rates
sooner than it currently expects.
The prospect of tighter monetary policy knocked shares lower
and major stock indices had slipped further in the red by noon.
The Dow Jones Industrial Average shed 1.3%, the S&P 500
dropped 1.5%, its biggest fall in a single day in 2-1/2
months, and the Nasdaq Composite lost 2.3%.
Richard Clarida, vice chair of the Federal Reserve,
acknowledged on Wednesday that the latest inflation report was
the second piece of data in a week to catch the central bank
off-guard, describing it as the "biggest miss in history".
Yet, Clarida maintained the Federal Reserve's dovish note,
saying it will be "some time" before the U.S. economy is
sufficiently healed for the central bank to consider pulling
back its crisis-level of support.
Some investors believe that the Federal Reserve might be
under-estimating the intensity of price pressures, however.
"We’ve been warning about the prospect of higher for longer
inflation in the United States for many months, but even we
hadn’t predicted this," said James Knightley, chief
international economist at ING Group, adding that there is
evidence of "broadening price pressures".
"We increasingly doubt the Fed’s position that this is
transitory and think they will end up hiking rates far sooner
than 2024."
DOLLAR GAINS
Weakness on Wall Street mirrored stock market losses in
Asia, as surging commodity prices stoked inflation concerns.
MSCI's broadest index of Asia-Pacific shares outside Japan
had slumped 0.95% overnight, after hitting its
lowest level since March 26.
Wednesday's unexpectedly strong inflation data lifted U.S.
Treasury yields. The benchmark 10-year Treasury yield
jumped to 1.6880%, and the two-year Treasury yield
also rose to stand at 0.1668%.
In keeping with expectations of rising price pressures as
the U.S. economy recovers from the COVID-19 pandemic, the yield
curve steepened, and the spread between 10- and two-year
Treasury yields widened to 152 basis points.
The dollar, which could benefit from rising real interest
rates, gained after a wobbling briefly earlier in the session.
The dollar index, which measures the greenback
against six major currencies, rose 0.6% to 90.762.
A stronger dollar weighed on the euro, and the
common currency slid 0.6% to $1.2070.
Higher Treasury yields and a stronger dollar dragged on
non-yielding bullion. Spot gold fell 0.8% to $1,822.35 an
ounce.
Hopes of strengthening demand on the back of an economic
recovery supported oil prices, which rose more than 1%, leaving
them on track for their highest close in almost eight weeks.
U.S. crude jumped 1.1% to $66.01 a barrel. Brent
crude also added 1.1% to $69.26 per barrel.
In cryptocurrencies, ether fell after scaling a
new record high overnight, dropping 1% to $4,133.79. The value
of the second-biggest digital token has surged over 5.5 times so
far this year.
(Reporting by Koh Gui Qing in New York, Tom Arnold in London
and Swati Pandey in Sydney; additional reporting by Sujata Rao
in London; Editing by Mark Heinrich and Alison Williams)