LONDON, March 31 (Reuters) - Share markets cruised to a fifth straight day of gains on Friday and bonds headed for their best month since 2008, as a dip in the Fed's favoured inflation gauge and a record monthly drop in euro zone inflation figures brought some end-of-quarter cheer.
An action-packed Q1 was drawing to a close with world stocks up 6%, government debt returning 4-5%, gold 8% higher, oil 8% lower and the dollar .DXY barely moved despite some recent banking scares.
Europe's shares had been lifted 0.5% .STOXX when euro zone data showed consumer prices there rising 6.9% after an 8.5% increase in February, representing the sharpest deceleration since Eurostat started collecting data in 1991.
Wall Street opened up almost as much after the February U.S. personal consumption expenditures (PCE) price index slowed to 5.0% from 5.3% with the so-called core number, which excludes volatile food and energy, nudging down to 4.6% from 4.7%.
"The brakes are on the economy, but slowly," said Hans Peterson, the global head of asset allocation at SEB investment management. "So down the road we will have to see what the central banks do."
A 2.5% rise for the week meant MSCI's 47-country all world index .MIWD00000PUS was heading for its best week since January, while Asian equities .MIAPJ0000PUS had also notched up their first March gain in four years.
That part of the world has been lifted by China casting off its COVID restrictions this year. MSCI Asia ex-Japan has added 3.6% so far following its 12% sprint in the final quarter of 2022.
Japan's Nikkei .N225 also jumped 1% on Friday,as inflation data for the capital Tokyo highlighted broadening price pressures, which in contrast to most other parts of the world is seen as a benefit after decades of deflation. .T
China and Hong Kong's Hang Seng .CSI300, .HSI rose modestly too after China's PMI data showed that the recovery in the services sector was gathering pace and manufacturing activity expanded faster than expected.
Investors were still cheered by internet giant Alibaba's 9988.HK revamp plan which has seen its shares make a whopping 17% this week and been taken as a sign that Beijing's regulatory crackdown might be over for now.
Fellow Chinese e-commerce firm JD.com Inc 9618.HK jumped 6% on Friday after it announced somewhat similar plans to spin off its property and industrial units.
CENTRAL FOCUS
Wall Street's early rise came after gains for tech stocks but falls in regional bank shares on Thursday after Treasury Secretary Janet Yellen said banking rules needed to be re-examined in the wake of recent turmoil.
Friday's focus was back on the economy and what the inflation picture means for the Fed, the global economy and the creaky parts of the banking system following this month's collapse of Silicon Valley bank and emergency takeover of Credit Suisse in Switzerland.
"The underlying source of these (banking market) stresses, which have to do with interest rates, inverted yield curves, etc., is still with us, so these stress factors have not gone away. I suspect we will see bouts of volatility in markets during 2023," said Herald van der Linde, head of equity strategy for Asia at HSBC.
Fed funds futures are still split on whether the Federal Reserve will hike or not at the next policy meeting in May, while pricing in a rate cut by November. That compared with an overwhelming bet on a 25 basis point hike a month ago before the banking volatility started. FEDWATCH
U.S. Treasuries have had a blockbuster month, with the two-year yields US2YT=RR down a whopping 70 basis points to 4.110%, the biggest monthly decline since the 2008 financial crash. Ten-year yields US10YT=RR are more than 35 bps lower this month to 3.519%, confounding those who had expected the opposite after big rises in February.
"Everyone that was short bonds was trounced," said Ted Pincus at Switzerland-based hedge fund Mangart Capital, referring to those who had bet on bond yields rising further.
"That's the problem when you have these kinds of rapid moves."
DOLLAR DULLER
Moves in foreign exchange markets remained muted, but the U.S. dollar was on course for a 2.7% monthly drop against six of its peers, albeit only a 1.1% dip for the quarter. FRX/
The euro EUR=EBS, which hit a one-week high against the dollar overnight on sticky German inflation data, dipped back under $1.09, still on track for a 3% monthly rise.
Japan's yen JPY=EBS, which has benefitted from safe-haven flows, is headed for a 2.5% gain for the month, while emerging market currencies have mostly risen too.
Oil prices seesawed on Friday, and were down more than 3% for the month and 8% for the quarter. U.S. crude CLc1 futures were a tad higher on the day at $74.92 per barrel, while Brent crude LCOc2 futures rose to $79.50 per barrel.
Gold XAU= hovered near its highest since April last year, up more than 8% for the month to $1,980.20 per ounce. GOL/
(Additional reporting by Stella Qiu in Sydney; Editing by Gareth Jones and Christina Fincher)
