TOKYO, RAW – Asian stocks have extended their rebound from a two-month low after a report on US consumer prices calmed concerns about inflation and lifted the Dow Jones Industrial Average to a record close.

An index of regional stocks excluding Japan rose 0.7 per cent, led by a 1.7 per cent surge in South Korea’s Kospi, and was on track for its first three-day advance in three weeks.

China’s Shanghai Composite rallied 1.6 per cent, while Japan’s Nikkei 225 gained 0.5 per cent.

“The reflation trade is back on,” said Michael McCarthy, chief markets strategist at CMC Markets.

The US Labor Department said its consumer price index rose 0.4 per cent in February, in line with expectations, after a 0.3 per cent increase in January. Core CPI, which excludes volatile food and energy components, edged up 0.1 per cent, just shy of the 0.2 per cent estimate.

While analysts largely expect a hike in inflation as vaccine rollouts lead to a reopening of the economy, worries persist that additional stimulus in the form of a $US1.9 trillion coronavirus relief package set to be signed by US President Joe Biden could overheat the economy.

Benchmark 10-year notes last yielded 1.5317 per cent, stabilising from lows of 1.5060 per cent overnight following an auction of benchmark 10-year notes that was not as bad as feared.

Investors will now eye an auction of 30-year debt on Thursday, seeking to cover massive shorts. A weak seven-year auction in late February helped fuel inflation concerns and sent yields higher.

“Rises in US bond yields appear to have subsided a bit after the 10-year yield has reached 1.5 per cent, even though many investors remain cautious before the Fed’s policy meeting,” said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

The fall in the 10-year yield after the auction wasn’t enough to help the tech-heavy Nasdaq, which lagged both the Dow and the S&P 500 after its strong move on Tuesday.

The Dow Jones Industrial Average rose 1.45 per cent to a record closing high, the S&P 500 gained 0.60 per cent and the Nasdaq Composite dropped 0.04 per cent.

MSCI’s gauge of stocks across the globe gained 0.27 per cent on Thursday.

Gold held near a one-week high reached on Wednesday as US Treasury yields eased.

Spot gold prices rose 0.2 per cent to $US1,729.62 an ounce.

The dollar moved lower following the economic data, and remained weaker in Asian trading.

The dollar index slipped to 91.776, following a 0.2 per cent drop overnight.

The euro stood at $US1.1932 while the safe-haven yen eased slightly to 108.52 per dollar.

US crude futures stood at $US64.95 per barrel, up 50 cents or 0.78 per cent. Brent crude futures were at $US68.38 per barrel, up 48 cents or 0.71 per cent.