Global markets edge lower as U.S. inflation data raises more questions

By Elizabeth Dilts Marshall

NEW YORK (Reuters) - World markets edged lower and the dollar fell on Tuesday after data showed U.S. inflation rose by less than expected, stoking uncertainty over U.S. central bank policy.

MSCI's world stocks benchmark fell 0.53 points or 0.03%.

European shares were 0.03% lower, while U.S. stocks were mixed on Tuesday.

The Dow Jones Industrial Average fell 177.63 points, or 0.51%, the S&P 500 lost 6.37 points, or 0.14%, and the Nasdaq Composite added 29.07 points, or 0.19%.

The Labor Department said on Tuesday its Consumer Price Index (CPI) excluding the volatile food and energy components edged up just 0.1% last month, compared to an expected increase of 0.3%. That was the smallest gain since February and followed a 0.3% rise in July.

The data comes ahead of the U.S. Federal Reserve meeting next week, raising new questions as to when the Fed will begin tapering its asset purchases.

"While pandemic-sensitive factors, including airfares and hotels, dragged on prices in August, underlying signals were somewhat firmer, suggesting a stabilizing source of support for inflation in the months ahead," wrote Morgan Stanley (NYSE:MS) Chief U.S. Economist Ellen Zentner.

Fears that inflation may prove more prolonged than central bankers expect have kept stocks down in September after seven-months of gains as the global economy appeared to be recovering from the COVID-19 pandemic.

The prospect of a corporate tax rise in the United States from 21% to 26.5% as part of a $3.5 trillion budget bill remains front and center for investors.

Investment bank Goldman Sachs Group Inc (NYSE:GS) estimates that if Democrats succeed in raising the corporate tax rate increase to 25% and get half of the hike proposed in foreign income tax rates, it could shave 5% off S&P500 earnings in 2022.

In Asia, China's tightening grip on its technology companies again kept investors on edge. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.4%.

Hong Kong's Hang Seng Index sank 1.2%, and China's blue-chip CSI300 index lost 1.5%. China's technology stocks are being closely scrutinised after authorities told tech giants to stop blocking each other's links on their sites.

A series of tightening regulations has dragged down the Hang Seng Tech Index by nearly 40% since its peak this year in February.

The Nasdaq Golden Dragon China Index, which tracks Chinese companies listed in the United States, fell 1.1% on Monday. It has declined 35.5% over the past six months.

"We are still concerned about the regulations," Luke Moore, Oreana Financial Services chief executive, told Reuters."We don't see an end in sight to the changes yet. Everyone is looking for clarity on how far the regulations will go and what could be next."

The dollar index fell 0.173 points or 0.19%, to 92.502.

The euro was last up 0.10%, at $1.1820.

The yield on 10-year Treasury notes US10YT=RR was down 1.8 basis points to 1.306%.

Bond yields in the euro area moved up, with Germany's 10-year yield, the benchmark for the bloc, at -0.30%, hitting a two-month high. [L8N2QG19D]

Oil prices hit a six-week high on Tuesday on concerns that another storm could affect output in Texas. Brent crude was last up $0.15, or up 0.2%, at $73.66 a barrel. U.S. crude was last up $0.18, or up 0.26%, at $70.63 per barrel.

Spot gold prices rose $12.2709 or 0.68%, to $1,805.76 an ounce. [GOL/]