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Dollar rallies, Treasuries slip as price data fuel rate concerns

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(Bloomberg) — The dollar strengthened and Treasuries fell after core consumer prices rose the most in two years, boosting speculation the Federal Reserve may be able to raise interest rates soon. U.S. stocks fluctuated, while oil dropped.

The Standard & Poor’s 500 Index lost 0.1 percent at 9:31 a.m. in New York, after closing at a record. The Bloomberg Dollar Spot Index rose 0.6 percent, extending its best week since June 2013. The 10-year Treasury yield increased one basis point to 2.20 percent. U.S. oil slid 1.8 percent, paring its 10th week of gains.

The cost of living excluding food and fuel rose at a faster pace than expected in April, signaling inflation is moving toward the Fed’s goal. Chair Janet Yellen is due to speak on the economy at 1 p.m., as mixed data have prompted investors to push back estimates for when the Fed will begin raising rates, helping to drive equities to all-time highs.

“Any time you do get a little bit stronger data, people kind of flinch,” Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts, said by phone. “Their first reaction is that the Fed is getting what it wants to raise rates. The stock market is at new highs and a little overbought on a near-term basis, and people are taking some chips off the table ahead of the long weekend.”

The core consumer-price index climbed 0.3 percent, the biggest gain since January 2013, according to the Labor Department. Reports Thursday showed sales of existing homes in April unexpectedly dropped, while a factory data indicated the manufacturing industry remains tepid this month.

Stocks, dollar

The S&P 500 has advanced 0.1 percent in the week and closed Thursday at an all-time high. The gauge has gained 2.2 percent in May. U.S. markets are closed Monday for the Memorial Day holiday.

The Bloomberg dollar index, which tracks the greenback against 10 major peers, has climbed 2.4 percent this week, the most since June 2013. The barometer had plunged for five straight weeks after reaching the highest level in data going back to 2005.

The dollar gained versus 12 of its 16 major peers. The euro slid 0.1 percent to $1.1097 and the yen dropped 0.3 percent.

Shorter-term notes led losses among Treasuries, with three- year yields rising five basis points to 1 percent. Benchmark 10- year notes were set for a weekly decline, even after advancing every day since minutes of the Fed’s April meeting released on May 20 signaled it is unlikely to raise rates in June.

Yellen Talk

“Yellen is speaking later on so we’ll be holding out to see what she has to say,” Larry Peruzzi, the Boston-based director of international trading at Cabrera Capital Markets LLC, said by phone. “But unless it’s something disastrous, don’t expect anything screaming either way. We’re also watching if there’s any more news on Greece, as it isn’t looking promising there.”

Following talks with Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel told Greece there’s no alternative to dealing with creditors as it seeks to unlock bailout funds.

Gains in German bonds left the 10-year bund yield, the euro area’s benchmark, two basis points lower for the week. In the previous four weeks the yield surged to 0.62 percent on May 15 from 0.08 percent on April 17 amid a global debt rout.

Spanish and Italian 10-year bond yields were little changed, at 1.75 percent and 1.83 percent, respectively.

Europe, oil

The Stoxx 600 headed for a fifth straight gain, the longest streak since April 13. The index is poised its biggest weekly gain since that time, as Executive Board member Benoit Coeure said the European Central Bank will increase bond buying in May and June.

The MSCI Emerging Markets Index advanced 0.8 percent, trimming losses this week to 0.3 percent. The Shanghai Composite Index jumped 2.8 percent, extending gains this week to 8 percent. Weak manufacturing data spurred speculation the government may escalate measures to stimulate the economy.

Oil headed for the longest run of gains since futures trading started in 1983 after U.S. crude stockpiles shrank for a third week. West Texas Intermediate futures fell to $59.58 a barrel, paring its weekly advanced. Brent crude dropped 2.1 percent to $65.18.

–With assistance from Ben Sharples in Melbourne, Adam Haigh in Sydney, Emma O’Brien in Wellington, Cecile Vannucci, James Herron, Anooja Debnath and Paul Dobson in London, Yumi Ikeda in Tokyo, Oliver Renick and Joseph Ciolli in New York and Nick Gentle in Hong Kong.