Global Markets: Stocks extend record run; bond yields up, euro at 3-yr high

By Caroline Valetkevitch

NEW YORK (Reuters) - A key global stock index was on track for an eighth week of gains on Friday and U.S. stocks rose amid a rally in bank shares and strong U.S December retail sales data, while a robust U.S. inflation report boosted Treasury yields.

Underlying U.S. consumer prices posted their biggest gain in 11 months in December, bolstering expectations about a pickup in domestic inflation and about Federal Reserve interest rate hikes this year.

"One of the things that's been driving the market is an expectation that inflation may start to pick up or at least normalize this year and encourage the Fed to continue along its (monetary policy) tightening path, and today's data surprised to the upside," said Michael Pond, head of global inflation-linked research at Barclays in New York.

The two-year Treasury yield, which is sensitive to traders' views on interest rates, jumped over 2 percent to its highest since September 2008.

The U.S. dollar slumped to a more than three-year low against the euro. The common currency extended its gains on hopes that European Central Bank policymakers are preparing to reduce their vast monetary stimulus program.

The euro was up 0.9 percent to $1.2139, on pace for its biggest single-day percentage gain against the greenback in about two months.

The euro's rise weighed on the dollar index, which measures the greenback against six rival currencies. The index was down 0.59 percent at 91.313, after slipping to a four-month low of 91.243.

The index pared losses slightly after the release of the U.S. consumer price data.

On Wall Street, bank shares rose following quarterly results from JPMorgan Chase & Co and Wells Fargo. While tax-related costs are expected to weigh on banks' earnings, they are expected to benefit in the long run from a lower tax burden.

The Dow Jones Industrial Average rose 202.12 points, or 0.79 percent, to 25,776.85, the S&P 500 gained 13.61 points, or 0.49 percent, to 2,781.17 and the Nasdaq Composite added 40.44 points, or 0.56 percent, to 7,252.21.

The pan-European FTSEurofirst 300 index rose 0.17 percent and MSCI's gauge of stocks across the globe gained 0.56 percent.

U.S. stock indexes hit all-time highs, along with the MSCI world index.

The MSCI index has already surged 3.8 percent since the start of the year.

In commodities, oil prices retreated from 2014 highs hit the previous day, but they remained on track for a fourth week of gains.

U.S. crude fell 0.22 percent to $63.66 per barrel and Brent was last at $69.15, down 0.16 percent on the day.

Investors warned that while rising oil prices were supportive, they could weigh negatively especially on crude-consuming regions.

For the Reuters Live Markets blog on European and UK stock markets, open a news window on Reuters Eikon by pressing F9 and type in 'Live Markets' in the search bar

(Additional reporting by Marc Jones in Helen Reid in London and Kate Duguid in New York; Editing by Bernadette Baum)