NEW YORK, Aug 31: European stock markets wobbled Friday but Wall Street rallied as investors digested inflation figures that raised the prospect of interest rate cuts in the two major economies next month.
Paris closed 0.1 percent lower while Frankfurt and London were marginally in the red after the indexes were in the green for most of the day.
In New York, the Dow closed at a new record while the broad-based S&P 500 index and the tech-heavy Nasdaq also rose.
Official data on Friday showed the US Federal Reserve's favored measure of inflation -- the personal consumption expenditures (PCE) price index -- held steady on an annual basis in July at 2.5 percent.
It edged up on a monthly basis from 0.1 percent in June to 0.2 percent in July.
The figures were in line with market forecasts, raising expectations that the Fed will cut rates when it meets on September 17-18.
"It's another reassuring inflation report for a Fed that's looking to lower interest rates at its mid-September meeting," said Bret Kenwell, US investment analyst at eToro trading platform.
"It would have taken a scorching hot inflation report for the Fed to reverse course on a rate cut now," Kenwell said.
The only doubt now is the size of the reduction.
Analysts expect a cut of 0.25 percentage points, but some say it could be bigger if jobs data next week shows weakness in the labor market.
"There are still concerns about the jobs market. Another big miss could increase speculation of a 50 basis point cut," Kenwell said.
In Europe, official figures showed that inflation slowed to 2.2 percent in August in the 20 countries that share the euro.
The figures raised hopes that the European Central Bank, which cut rates already once in June but paused in July, will lower borrowing costs again in September.
French central bank governor Francois Villeroy de Galhau said in an interview with the magazine Le Point published Friday that it would be "fair and wise" for the ECB to cut rates at its September 12 meeting.
"If we waited until we were actually at two percent to lower rates, we would be acting too late," said Villeroy de Galhau, a member of the ECB governing council that decides on rates.
GianLuigi Mandruzzato, senior economist at EFG Asset Management, said that while a rate cut is expected next month, an increase in services prices raised the likehood that the ECB will not reduce them again before December.
ECB board member Isabel Schnabel cautioned on Friday that the Frankfurt-based institution should "proceed gradually and cautiously" on rates.
Speaking before the eurozone inflation figures were released, she pointed in particular to "persistent price pressures in the services sector." —AFP
