GLOBAL MARKETS - Gold Rallies, Stocks Ease as Rate Cut Optimism Fades

GLOBAL MARKET - NEW YORK/TOKYO, April 1 (Reuters) - Gold prices hit fresh all-time peaks on Monday with stocks on Wall Street closing mixed as optimism that the Federal Reserve was near to cutting interest rates faded due to a strong U.S. economy that rebuts the need for cuts anytime soon.

Chinese shares led a rally around most of Asia overnight amid a broadly optimistic global economic backdrop, while the dollar rose after data showed the U.S. manufacturing sector grew in March for the first time since September 2022.

What had been an optimistic reading of key U.S. inflation last week soon darkened as the market weighed the strength of the U.S. economy versus the need for immediate rate cuts.

The three government measures of U.S. inflation – CPI, PPI and PCE – show improvement has leveled off, leading to questions about when and by how much the Fed cuts, said Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.

"The markets are reassessing what they thought was going to be a very aggressive rate-cut episode," Flanagan said.

"Whether they go in June or July, whatever, what is it going to look like? Right now, the data would be showing you that it's not going to be uniform."

Oil prices stayed near five-month highs as markets expect tighter supply due to OPEC+ cuts and after attacks on Russian refineries, with Chinese manufacturing data supporting a stronger demand outlook.

The dollar index =USD, a measure of the U.S. currency against six major peers, rose 0.47%.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.36%.

On Wall Street, the Dow Jones Industrial Average .DJI fell 0.6% and the S&P 500 .SPX lost 0.20%, but the Nasdaq Composite .IXIC added 0.11%.

European markets were closed on Monday and most markets across the globe were closed on Friday.

Fed Chair Jerome Powell said on Friday that inflation data released that day "is what we were expecting" and that "you won't see us over-reacting," suggesting the U.S. central bank is content to remain in wait-and-see mode.

Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, said the Fed does not want to relive the 1970s when it cut too soon and inflation reignited.

"The potential for a cut keeps getting pushed off because Powell says almost with a giddy tone that this is a great environment. Interest rates are above average, not wildly above, but above average.

"It's better to keep those cuts in your pocket."

Friday's report on personal consumption expenditures (PCE) price index data earlier drove expectations for easier U.S. monetary policy, lifting gold to a fresh record high.

Gold pared gains as the dollar and bond yields rose. Gold prices tend to move inversely with interest rates because as rates rise, gold becomes relatively less attractive.

Spot gold XAU= hit an all-time high of $2,265.49 an ounce earlier in the session. U.S. gold futures GCcv1 settled 0.9% higher at $2,236.50 an ounce.

U.S. Treasury yields rose as the stronger-than-expected manufacturing data raised doubts on whether the Fed can deliver on the three interest rate cuts outlined in its forecast at its last policy meeting.

The yield on two-year US2YT=RR Treasury notes, which reflects interest rate expectations, rose 9.2 basis points to 4.712%. The 10-year's yield US10YT=RR rose 12.3 basis points to 4.317%, after earlier touching a two-week high of 4.337%.

Japanese shares earlier tumbled with the yen pinned near levels that kept traders on guard for a currency intervention. The yen loitered below 152 per dollar.

Japan's Nikkei.N225 fell 1.4% as of the close, weighed down by worries about yen-buying intervention that would hurt exporter profit outlooks and returns for foreign investors.

Brent LCOc1 rose 42 cents to settle at $87.42 a barrel, while U.S. crudeCLc1 settled up 54 cents to $83.71 a barrel.

By Herbert Lash and Kevin Buckland

(Reporting by Herbert Lash and Kevin Buckland; Editing by Stephen Coates, Nick Zieminski and Rosalba O'Brien)