Dollar rises on inflation data; Wall St. gains

By Sinead Carew

NEW YORK (Reuters) - The dollar strengthened, helped by stronger-than-expected underlying domestic inflation data, and U.S. stocks were driven higher by the financial sector and some bank earnings reports.

The dollar was up 0.4 percent after a three-day slide against a basket of currencies, on track for its biggest gain since Sept. 30. A 0.2 percent rise in September core U.S. consumer prices revived bets inflation is edging closer to the Federal Reserve's 2 percent target.

The data also pushed up U.S. Treasuries yields slightly as it renewed some hopes for a 2015 Federal Reserve interest rate hike.

"The inflation picture looks less grim. That gave some stability to the dollar," said Sebastien Galy, currency strategist at Deutsche Bank in New York.

Neil Bouhan, government bond strategist at BMO Capital Markets in Chicago said the data implies some "possibility that the Fed could still build a 2015 case for liftoff."

U.S. stocks snapped two days of losses, helped by strength in some third-quarter earnings reports. While the benchmark S&P 500's financial sector <.SPSY> led the pack with banks as the top drivers, results were mixed.

Citigroup was the index's biggest influencer with a 4 percent rise after it beat estimates. Goldman Sachs shares rose 2.4 percent even after it missed expectations.

But Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis, was not encouraged by earnings so far and argued that weak regional surveys monitoring economic activity makes a closer Fed liftoff unlikely.

"You've got traders taking bets on which way it's going to break. That could be disrupted if there was enough fundamental reports," he said, but noted that none of the fundamental reports "have been decisive enough to take you away from the technical battle that's going on."

The Dow Jones industrial average rose 132.01 points, or 0.78 percent, to 17,056.76, the S&P 500 gained 17.33 points, or 0.87 percent, to 2,011.57 and the Nasdaq Composite added 44.67 points, or 0.93 percent, to 4,827.52.

Oil prices fell for the fourth straight day as the U.S. government reported a larger-than-expected crude stockpile build. U.S. crude was down 1.1 percent at $46.15 per barrel while Brent fell 0.7 percent to $48.81. [O/R]

Other commodities were doing better with gold up 0.2 percent while copper rose 0.6 percent.

European shares snapped a three-day slide and the regional FTSEurofirst 300 closed up 1.4 percent on prospects for more monetary policy support. European Central Bank policymaker Ewald Nowotny said new efforts are needed to boost price growth as inflation keeps missing the European target.

MSCI's emerging share index <.MSCIEF> was up 2 percent after a two-day fall and hit its highest level since Aug. 13.

"People's fears of a global slowdown are maybe bottoming out," Paulsen said.

(Additional reporting by Marc Jones in London, Sam Forgione in New York, Abhiram Nandakumar in Bengaluru; Editing by Nick Zieminski and Meredith Mazzilli)