By Chuck Mikolajczak
NEW YORK (Reuters) - A gauge of global stocks advanced for a second straight session on Tuesday and U.S. Treasury yields fell after a softer-than-expected report on consumer spending, while investors digested comments from multiple Federal Reserve officials on interest rates.
Retail sales rose 0.1% last month after a downwardly revised 0.2% drop in April, the U.S. Commerce Department said. The result was below expectations of economists polled by Reuters for a gain of 0.3%, and indicated economic activity was slowing as higher interest rates affect consumer spending patterns.
"The weaker-than-expected data's telling me that consumers are still having a difficult time and that the economy is still moving forward, but at a slower pace," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management in Fairfield, Connecticut.
"The Fed has to start thinking about cutting interest rates, perhaps sooner than the end of the year."
Market expectations that the Federal Reserve could cut rates at its September meeting crept higher, pricing in a 67.7% chance for a cut of at least 25 basis points, up from 61.5% on Monday.
Other data showed U.S. business inventories rebounded in April, increasing by 0.3% after slipping 0.1% in March.
On Wall Street, U.S. stocks closed higher with the S&P 500 and Nasdaq closing at record levels as Nvidia (NASDAQ:NVDA) became the world's most valuable company by market capitalization.
The Dow Jones Industrial Average rose 56.76 points, or 0.15%, to 38,834.86, the S&P 500 gained 13.80 points, or 0.25%, to 5,487.03 and the Nasdaq Composite gained 5.21 points, or 0.03%, to 17,862.23.
U.S. markets will be closed on Wednesday for the Juneteenth holiday.
MSCI's gauge of stocks across the globe rose 3.73 points, or 0.47%, to 804.10, just shy of the 804.52 intraday record hit on June 12.
New York Federal Reserve Bank President John Williams said interest rates will come down gradually over time, but declined to say when the U.S. central bank can kick off its monetary policy easing, while Richmond Fed President Thomas Barkin said he needs to parse several more months of data before he can consider supporting a rate cut.
Other Fed officials also struck notes of caution. Governor Adriana Kugler said the central bank can't risk the progress made so far by cutting rates too soon.
European shares also climbed, as the focus shifted to economic data and comments from central bank officials, steadying from a sharp drop last week after French President Emmanuel Macron called a snap election.
The STOXX 600 index closed up 0.69%, while Europe's broad FTSEurofirst 300 index gained 13.14 points, or 0.65%
The gap between French and German 10-year government bond yields, seen as a gauge of risk premium on French government bonds, narrowed to as much as 68.96 basis points after hitting 82.34 bps on Friday, the highest level since February 2017.
U.S. Treasury yields moved lower following the retail sales data. An auction of $13 billion in 20-year bonds was seen as strong, with a yield nearly 3 basis points below the bidding deadline, and demand at 2.74 times the bonds on sale.
The yield on benchmark U.S. 10-year notes declined 6.2 basis points to 4.217%, from 4.279%.
The dollar pared gains on the heels of the data but was only slighter lower on the session. The dollar index slipped 0.02% at 105.25, while the euro edged 0.06% higher at $1.074.
Against the Japanese yen, the dollar strengthened 0.08% at 157.84. Sterling strengthened 0.03% at $1.2707.
Earlier in the day, the Reserve Bank of Australia kept rates at a 12-year high of 4.35%, as expected, but warned there were still reasons to guard against inflation risks.
The Australian dollar strengthened 0.67% versus the greenback at $0.6656.
Central banks in Norway, Britain and Switzerland are also scheduled to meet this week. Only the Swiss National Bank is expected to announce a rate cut.
U.S. crude settled up 1.54% to $81.57 a barrel and Brent advanced to settle at $85.33 per barrel, up 1.28% on the day as geopolitical risks posed threats to global supply.