By Herbert Lash and Tom Arnold
NEW YORK/LONDON (Reuters) - World stock markets closed near record highs and U.S. bond yields fell on Wednesday as some of U.S. President Joe Biden's stimulus efforts appeared to be on the rocks, boosting the appeal of technology stocks as inflation pressures ease.
A little-noticed ruling by Senate parliamentarian Elizabeth MacDonough in May said Democrats can only use "reconciliation" once in a fiscal year to circumvent legislation that requires 60 votes. Democrats passed Biden's $1.9 trillion COVID-19 relief package in March through reconciliation.
Democratic fiscal packages in Congress are rapidly shrinking, leading to a net outcome that inflationary pressures are set to recede, said Sebastien Galy, senior macro strategist at Nordea Asset Management.
The yield on benchmark 10-year U.S. Treasury notes fell 3.9 basis points to 1.4891%, down from 1.528% late on Tuesday.
Yields plunged as traders in part were forced to unwind short positions in Treasuries, said Joe LaVorgna, chief economist of the Americas at Natixis.
"More importantly, the economy is at its peak growth and a lot of what the (Biden) administration wants to do in terms of fiscal stimulus may not be met because of the parliamentarian ruling," LaVorgna said.
MSCI's all-country world index, a U.S.-centric benchmark for global equity markets, closed down 0.2% at 715.57, less than 3 points from its record peak on Tuesday.
On Wall Street, the S&P 500 came within 1 point of its all-time high set in May as big tech rallied along with healthcare stocks.
The Dow Jones Industrial Average slipped 0.44%, the S&P 500 shed 0.18% and the Nasdaq Composite fell 0.09%, as growth stocks closed slightly higher and underpriced value stocks fell.
The market is on hold as everybody wants to trade "meme stocks," which are not part of the major indexes, said Dennis Dick, a proprietary trader at Bright Trading LLC.
"Why is somebody going to trade Apple (NASDAQ:AAPL) , trying to make 10% a year, when they can make 10% in five minutes in GameStop?" Dick said.
Attention remained focused on Thursday's release of U.S. consumer price data and a European Central Bank meeting that could reveal how soon policymakers will begin to withdraw support for Europe's economy as the COVID-19 crisis subsides.
The pan-regional STOXX Europe 600 index rose 0.1% to a new record close, but shy of all-time peak on Tuesday. Britain's FTSE fell 0.2% as UK-listed miners slipped under pressure from lower base metal prices.
Air France KLM (OTC:AFLYY), Lufthansa and British Airways owner IAG (LON:ICAG) climbed about 3% each after the U.S. Centers for Disease Control and Prevention (CDC) said it was easing travel recommendations on 110 countries and territories.
Overnight in Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.4% lower, as did Japan's Nikkei average.
Germany's 10-year Bund yield, which is closely correlated with U.S. Treasuries, extended Tuesday's decline to -0.247%, the lowest since late April, as investors continued to price in a dovish outcome to the ECB policy meeting on Thursday.
Thursday's U.S. consumer price data is expected to show the overall annual inflation rate spiking to 4.7%, worrying many investors who are not persuaded by the Federal Reserves's insistence the spike in prices will be transitory.
CURRENCIES STEADY
Inflation data from China showed its producer price index jumped 9.0% from a year earlier, the highest in over 12 years, on surging commodity prices.
The rise in consumer prices, however, was softer than expected, helping to mitigate concerns. While China's central bank is slowly scaling back pandemic-driven stimulus, top leaders have vowed to avoid any sharp policy turns and keep borrowing costs low.
The Chinese yuan, whose rally to a three-year high last week was propelled in part by speculation Beijing may want a stronger yuan to tame inflationary pressure, ticked up slightly to 6.3869 per dollar.
The dollar held at the lower end of recent gains, with the U.S. dollar index up slightly at 90.148.
The euro nudged higher to $1.2175, while the dollar rose to 109.61 yen.
Deutsche Bank (DE:DBKGn)'s Currency Volatility Index hit its lowest level since February 2020 on Tuesday, and sank even further on Wednesday.
Oil prices continued to rally on signs of strong fuel demand in Western economies.
Brent crude futures settled unchanged at 72.22 a barrel, while U.S. crude futures fell 9 cents to $69.96 a barrel.
U.S. gold futures settled 0.1% up at $1,895.50 an ounce.