GLOBAL MARKETS-Stocks surge on US inflation reading, upbeat fourth quarter earnings

*

US stocks rise after core inflation up less than forecast

*

U.S. Treasury yields fall with dollar

*

Oil and gold rally

(Updates prices to late morning)

By Sin?ad Carew and Amanda Cooper

NEW YORK/LONDON, Jan 15 (Reuters) - A global equities gauge rallied on Wednesday while the dollar fell with Treasury yields after data showed core U.S. inflation rose less than expected in December, raising hopes that the Federal Reserve could ease rates further.

Investors also cheered the first wave of U.S. bank earnings reports.

The Bureau of Labor Statistics said the consumer price index (CPI) rose at an annual rate of 2.9% in December, from November's 2.7%, in line with expectations for 2.9%.

But core inflation, which excludes food and energy prices, rose by 3.2% below forecasts for an annual rise of 3.3%.

Adding to the upbeat tone for the stock market were bumper fourth-quarter results from the likes of JPMorgan (JPM), which reported its biggest annual profit on record on Wednesday, top asset manager BlackRock (BLK), which logged a record $11.6 billion in assets, and Goldman Sachs (GS), which saw its profit more than double in the final three months of 2024.

"I think the market reaction is a pivot back to 'the Fed can lower rates if it wants to', as opposed to being boxed in a corner where higher inflation would keep them from acting," said Oliver Pursche, senior vice president and advisor at Wealthspire Advisors, Westport, Connecticut.

"So, the reality is right now investors are looking at the data as kind of a Goldilocks scenario where you have strong corporate earnings, a very resilient and strong economy and lower inflation. You just can't ask for more than that."

After the data, traders of interest-rate futures were pricing close to even odds the Federal Reserve would cut interest rates twice by the end of this year, with the first reduction to come in June.

On Wall Street, at 10:40 a.m. the Dow Jones Industrial Average rose 623.77 points, or 1.47%, to 43,142.05, the S&P 500 rose 94.60 points, or 1.62%, to 5,937.73 and the Nasdaq Composite rose 426.64 points, or 2.25%, to 19,470.57.

MSCI's gauge of stocks across the globe rose 12.19 points, or 1.46%, to 846.60. Europe's STOXX 600 equity index rose 1.33%.

BOJ RATE RISE?

The U.S. dollar lost ground against a basket of currencies after the data. Japan's yen was already boosted overnight, as traders priced 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 major currencies, fell 0.32% to 108.85.

The euro was up 0.14% at $1.0321, while against the Japanese yen the dollar weakened 1.11% to 156.22. Sterling strengthened 0.34% to $1.2256.

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.

"There was a growing fear that inflation pressures would cause the Fed to have to even contemplate raising rates in the near term and that's taken off the table just a bit," said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

"It doesn't mean that the Fed is going to ease. I think they're on hold. But just in general, you've seen rates rise quite a bit over the past few weeks, which has been a distraction for equity markets. Today's (data) pushes that to the back burner a bit for now."

The yield on benchmark U.S. 10-year notes fell 13.9 basis points to 4.649%, from 4.788% late on Tuesday, while the 30-year bond yield fell to 4.867% from 4.985%.

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

Oil prices rose on Wednesday as the market focused on potential supply disruptions from U.S. sanctions on Russian energy companies and tankers carrying Russian oil.

U.S. crude rose 1.65% to $78.78 a barrel and Brent rose to $80.86 per barrel, up 1.18% on the day.

Spot gold rose 0.12% to $2,680.49 an ounce. U.S. gold futures rose 1.12% to $2,707.60 an ounce.

(Reporting by Sin?ad Carew, Caroline Valetkevitch, Medha Singh, Amanda Cooper, graphic by Stephen Culp; Editing by Kirsten Donovan)