July 30 (Reuters) - U.S. stocks gained on Thursday as Microsoft's forecast-beating results eased investor worries about massive AI spending by companies, while 30-year Treasury yields scaled a 19-year peak after the Federal Reserve left interest rates unchanged on Wednesday, stoking concerns about longer-term inflation.
The Japanese yen also gained sharply, prompting speculation that Japanese officials intervened to shore up the beleaguered currency.
Microsoft (MSFT.O), rose 17% after the company forecast current-quarter sales and cloud growth that beat expectations, issued a capital expenditure outlook below Wall Street estimates, and said it expects to keep generating cash through the just-started fiscal 2027.
Investors have been rattled by rising AI costs at big technology firms even as they report strong earnings. Negative cash-flow reports from Alphabet (GOOGL.O), and Tesla (TSLA.O), last week sparked a bout of selling in AI-linked stocks, with chip stocks also under pressure as investors questioned high valuations.
"We don't think the AI story is over by any means, but clearly there's scope for bumps along the way," said Sanjiv Tumkur, head of equity research at Rathbones.
The Dow Jones Industrial Average (.DJI), rose 1.03% to 52,127.62, the S&P 500 (.SPX), gained 1.44% to 7,421.41 and the Nasdaq Composite (.IXIC), was up 2.55% at 25,065.84.
The MSCI All Country World Price index (.MIWD00000PUS), rose 1.37% after earlier falling to its lowest level since June 11.
South Korea's KOSPI (.KS11), fell 1.23% to end its third consecutive day in the red.
The pan-European STOXX 600 (.STOXX), index rose 0.77%, while Europe's broad FTSEurofirst 300 index (.FTEU3), rose 0.80%.
30-YEAR YIELDS HIGHEST SINCE 2007
Longer-dated Treasury yields extended Wednesday's sharp rise after the Fed's decision to hold interest rates steady raised fears that inflation — already running well above the Fed's target — could climb further.
The decision to leave policy on hold drew dissents from three of the 12 FOMC members, who had wanted a quarter-percentage-point hike instead. Fed Chairman Kevin Warsh's preference for less forward guidance has left traders even less certain of the Fed's next move.
Warsh noted that bond yields had risen notably since the Fed's last policy meeting, reflecting investors pricing in future rate increases. He welcomed that move, while adding that it did not mean the central bank needed to ratify it with action of its own.
"The strategy behind pulling back on forward guidance is forcing the market to take responsibility and enlisting the market in helping him do his job," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.
A recent uptick in oil prices pushed yields higher ahead of the Fed meeting, as fighting resumed in the U.S.-Iran war. Fed funds futures traders are now pricing in 64% odds of a hike at the Fed's September meeting.
The interest-rate-sensitive 2-year Treasury <US2YT=RR> yield fell 1.28 basis points to 4.223%, while the yield on benchmark U.S. 10-year notes rose 3.91 basis points to 4.661%.
Thirty-year yields were last up 6.41 basis points at 5.2071% and reached 5.2444%, the highest since mid-2007.
Data on Thursday showed U.S. inflation slowed in June, with the Personal Consumption Expenditures Price Index rising 3.7% in the 12 months through June, after an unrevised 4.1% gain in May — the largest increase since April 2023.
Separately, U.S. economic growth slowed in the second quarter amid a widening trade deficit, though an acceleration in consumer spending and robust business investment in AI infrastructure pointed to underlying strength.
Oil fell on Thursday in volatile trade as investors considered proposed plans for a Saudi Arabia-led maritime coalition to boost defence cooperation around the Red Sea, reversing an earlier rise in prices after Washington and Tehran traded strikes on each other's military targets again.
SUDDEN YEN GAIN SPARKS INTERVENTION SPECULATION
A sharp and sudden rally in the Japanese yen on Thursday sparked speculation that Japanese authorities had stepped in to shore up the currency that had weakened to a 40-year low against the U.S. dollar.
“The further it falls the more likely intervention becomes as an explanation," said Nick Rees, head of macro research at Monex Europe. "It’s a fairly sizeable fall and there’s no other obvious catalyst and the timing makes sense, coming at month-end and after weak U.S. data. Although we won’t know for certain for a while.”
The Bank of Japan is expected to keep rates steady at 1% on Friday. After raising rates in June, a second successive hike would be unusual.
The yen was last up 2.33% against the greenback at 159.65 per dollar.
The dollar index , which measures the U.S. currency against a basket of currencies including the yen and the euro, fell 0.77% to 100.00, with the euro up 0.51% at $1.1524.
Sterling strengthened 0.67% to $1.346.
The Bank of England kept interest rates on hold as expected, but a third policymaker backed a rate hike, citing renewed conflict between the United States and Iran.
Spot gold rose 1.05% to $4,107.78 an ounce.
Reporting by Karen Brettell; Additional reporting by Chuck Mikolajczak, Harry Robertson, Niket Nishant, Ankur Banerjee, Rae Wee, Sruthi Shankar and Ragini Mathur; Editing by Nick Zieminski and Nia Williams
