By Stephen Culp
NEW YORK (Reuters) - U.S. stocks ended the session higher and the dollar retreated on Monday, as investors looked ahead to Wednesday's inflation data, while the Bank of Japan suggested it could be moving toward closing the door on an era of negative interest rates.
The tech-heavy Nasdaq led the U.S. equities rally, gaining 1.1%, with electric automaker Tesla (NASDAQ:TSLA) Inc and Amazon.com (NASDAQ:AMZN) providing the biggest lift to the upside.
The S&P 500 and the Dow rose by 0.7% and 0.3%, respectively. The relatively languid session appeared to be the calm before a storm of U.S. economic data this week, with Wednesday's crucial consumer prices report (CPI) paramount.
"We're in the horse latitudes, with lack of directional breezes prior to the Fed meeting," said Sam Stovall, chief investment strategist of CFRA Research in New York. "What's driving the markets today is the anticipation of what may come later this week."
"Investors are focusing on how they will respond to Wednesday's CPI report," Stovall added.
Analysts expect inflation to have heated up last month, driven by rising oil costs. The core measure, which strips away volatile food and energy prices, is seen cooling on an annual basis.
The hotly anticipated CPI data will give market participants a snapshot of August inflation, and could provide some illumination regarding the duration of the U.S. Federal Reserve's restrictive policy cycle.
The Fed, which has left the door open to further interest rate hikes, has pledged to remain agile in its response to economic data.
Financial markets have essentially baked in a rate pause at the conclusion of its September 19-20 monetary policy meeting, beyond which the path forward grows less certain, according to CME's FedWatch tool.
Elsewhere, comments from Bank of Japan (BOJ) Governor Kazuo Ueda raised the possibility that Japan could begin moving away from its era of negative interest rates.
The Dow Jones Industrial Average rose 87.32 points, or 0.25%, to 34,663.91, the S&P 500 gained 30.01 points, or 0.67%, to 4,487.5 and the Nasdaq Composite added 156.37 points, or 1.14%, to 13,917.89.
European shares closed higher, led higher by mining stocks as investors girded themselves for the U.S. CPI print and the European Central Bank's (ECB) approaching policy decision, expected later in the week.
The pan-European STOXX 600 index rose 0.34% and MSCI's gauge of stocks across the globe gained 0.68%.
Emerging market stocks rose 0.51%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.4% higher, while Japan's Nikkei lost 0.43%.
The dollar lost ground against a basket of world currencies, as the sterling continued its recovery from a last week's three-month low and the euro strengthened. The yen surged against the greenback following Ueda's comments.
The dollar index fell 0.52%, with the euro up 0.45% to $1.0747.
The Japanese yen strengthened 0.87% versus the greenback at 146.55 per dollar, while Sterling was last trading at $1.2509, up 0.36% on the day.
U.S. Treasury yields inched higher in anticipation of the CPI report.
Benchmark 10-year notes last fell 8/32 in price to yield 4.288%, from 4.256% late on Friday.
The 30-year bond last fell 23/32 in price to yield 4.3753%, from 4.332% late on Friday.
Oil prices steadied, with Brent holding above $90 per barrel, a ten-month high reached last week following new Russian and Saudi output cuts.
U.S. crude dipped 0.25% to settle at $87.29 per barrel, while Brent settled at $90.64 per barrel, down 0.01% on the day.
Gold prices climbed modestly higher in opposition to the dollar.
Spot gold added 0.2% to $1,921.98 an ounce.