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Stocks, dollar higher on 'slow and steady' rate hopes

Wall Street stocks have reversed losses to end higher and United States government bond yields have tempered gains as investors digest strong economic data and signals of a measured interest rate approach from the Federal Reserve.

US jobless claims numbers fell, while Atlanta Fed President Raphael Bostic said he favoured "slow and steady" quarter-point US rate increases to limit risk to the economy.

That helped Wall Street stocks rebound from an initial decline.

The Dow Jones Industrial Average rose about one per cent, boosted by Salesforce Inc, whose shares jumped about 11.5 per cent after the cloud-based software provider gave an upbeat full-year profit forecast and doubled its share repurchase program.

The S&P 500 and Nasdaq Composite both gained about 0.75 per cent, even as Tesla Inc fell almost six per cent after the company did not unveil a much-awaited small, affordable electric vehicle.

After initially sagging, European shares rose 0.5, even as euro zone inflation numbers justified what is widely expected to be another 50 basis-point hike in the European Central Bank's already decade-high rates this month.

Consumer price inflation in the 20 countries sharing the euro currency barely eased to 8.5 per cent in February from 8.6 per cent in January on lower energy prices, above the 8.2 per cent economists polled by Reuters had expected.

MSCI's broadest index of world shares gained 0.37 per cent.

Stock and bond markets in recent weeks have been driven by different factors, said Kevin Gardiner, global investment strategist at Rothschild & Co.

The chief concern in stocks is the expectation of pressured corporate profits, while bonds are sensitive to inflation and rate expectations.

"The economic impact of tightening remains a puzzle. Profitability might not be that fragile, at least, not yet," he said.

Overnight, both benchmark government bonds and shares had taken a blow, as inflation indicators from Germany and the US reinforced expectations interest rates would go higher and stay there for longer.

Germany's two-year government bond yield rose to its highest since October 2008.

In the US, manufacturing activity contracted for a fourth straight month in February, but a gauge of prices for raw materials increased last month, stoking concerns that inflation would remain stubborn.

"Economic data has surprised to the upside," said Steven Oh, global head of credit and fixed income at PineBridge Investments.

Any unexpected result in the data would drive policymakers to be more aggressive, and that has reset market expectations, he said.

US government bond yields marched higher.

Benchmark 10-year Treasury yields were near a four-month high at 4.066 per cent, while two-year yields also advanced to 4.889 per cent, about a fresh 16-year high.

Fed funds futures tied to the Fed's policy rate see about an even chance that the rate will range from 5.5 per cent to 5.75 per cent by September, from the current range of 4.5 per cent to 4.75 per cent.

"We expect interest rates to stay higher for longer, and we expect stock market volatility ahead," strategists at the Wells Fargo Investment Institute wrote on Thursday, adding that stronger-than-expected economic data this winter pushed their recession outlook into the second half of 2023.

In currency markets, the US dollar index, measuring its value against a basket of major peers, gained almost 0.5 per cent to $US104.968 ($A155.939).

The index is now up about 1.4 per cent for the year, but still down from a September high about $US114 ($A169).

The euro lost 0.65 per cent and the pound dropped 0.67 per cent, with hotter-than-expected inflation numbers adding pressure on the ECB to raise rates.

In the crypto world, shares of Silvergate Capital plunged 57 per cent after the cryptocurrency-focused bank said it was delaying its annual report and evaluating its ability to operate as a going concern.

Bitcoin was last down about 0.5 per cent at $US23,461 ($A34,853).

Oil prices ticked up, boosted by signs of a strong economic rebound in top crude importer China and easing worries of aggressive US rate hikes.

US crude rose 0.32 per cent to $US77.94 ($A115.79) per barrel and Brent was at $US84.50 ($A125.53), up 0.23 per cent on the day.

Spot gold was slightly lower at $US1,836 ($A2,728) per ounce.