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S&P 500 hits record as inflation data come up short

Traders on the floor of the New York Stock Exchange

U.S. stocks and bonds rallied Friday, with both the S&P 500 index and Dow Jones industrial average reaching new highs, as U.S. inflation data came in short of Federal Reserve expectations, spotlighting the concerns of some central bankers about additional interest rate hikes.

The S&P 500 rose 0.5% to an all-time high of 2,459.27. The Dow Jones industrial average gained 0.4% to 21,637.74, also a record. The Nasdaq 100 increased 0.8%. The Stoxx Europe 600 added 0.2% for a weekly advance of 1.8%.

Treasuries notched their first weekly gain in three weeks, bolstered by Fed Chairwoman Janet Yellen's gradualist tone on policy tightening as inflation languishes below the central bank's 2% target. Oil and gold advanced. A gauge of the dollar fell for the fifth straight day, its longest losing streak in two months.

The recent pace of inflation in the world's largest economy has become even more pertinent since Ms. Yellen hinted in congressional testimony this week that sluggish price increases have structural causes. The soft June consumer price index number added to more than a quarter of shaky growth figures at a time when some Fed officials are hinging their support for further rate rises on the inflation outlook.

Retail sales also unexpectedly dropped in June for a second month of declines, signaling that consumers are providing only modest support for the U.S. economy and suggesting a weaker than hoped for rebound in the gross domestic product in the second quarter.

The Bloomberg Dollar Spot index declined 0.7%, close to its lowest level since September. The pound added 1.3% to $1.3108, and the euro gained 0.6% to $1.1469. Benchmark 10-year U.S. Treasury yields fell two basis point to 2.32%. Sovereign yields across Europe also declined, with the benchmark bund yield dropping less than one basis point and French peers two basis points lower.

West Texas Intermediate crude rose 1.1% to $46.60 a barrel for a weekly advance of more than 5%. Gold increased 0.9% to $1,228.61 an ounce. Zinc snapped a three-week streak of gains after inventories available to investors on the London Metal Exchange surged by the most on record.