By Tom Westbrook

SINGAPORE (Reuters) - Barely weeks after Japanese stocks broke three-decade highs, the country's financial markets are hurtling toward another phenomenon not seen for the best part of a generation: rising interest rates.

Bankers are attending remedial classes on what to do when rates move and trading rooms are setting up for moribund derivative markets to spring to life -- as they have begun to do.

Their pricing implies a matter of months at the most before the last bastion of a decades-long monetary policy experiment with negative short-term rates falls. An exit by the Bank of Japan is expected by June, with an even chance that rates will rise to zero next week.

Such a move, up 10 basis points, would be small, leaving traders to focus on broader signals: whether any change is implemented immediately, or later, and whether the BOJ winds down its enormous buying programme for assets ranging from Japanese government bonds to listed equity funds.

The symbolism is also heavy as Japan seeks to leave behind "lost" years marked by deflation and reawaken the fourth-biggest economy in the world as a destination for investment -- a change already rippling through corporate Japan and global markets.

"I personally think this is going to be the beginning of a new era," said Keita Matsumoto, head of financial institutions sales and solutions at Citigroup Global Markets Japan.

"It's a fundamental shift in peoples' mindset," he said, one that may take five or 10 years' adjustment as the economy changes.

Some of the biggest implications may be in Japan's 1.3 quadrillion yen ($8.7 trillion) government debt market.

Matsumoto said investors have positioned to benefit from selling of short-dated paper since a rise in central bank deposit rates would quickly draw banks' capital out of bonds and into cash.

Should a bigger policy shift drive longer-term rates up sharply, Japanese investors -- who own some $2.2 trillion in foreign debt -- might also lose their appetite in favour of paper closer to home, which would drag on global bond markets

In foreign exchange, a market that is heavily short the yen has reversed a little in recent days and must adjust to paying interest, albeit small, on the Japanese currency.

Equity investors have been snapping up bank shares on bets loans and margins will grow, though in the last few days trade has turned nervous as the potential policy shift draws near.

The Nikkei, which made a record high above 40,000 last week, posted its sharpest fall in five months on Monday.

"There has been a fair degree of excitement about the Japanese economy and monetary policy ... becoming 'more normal' and like the other countries," said Niraj Athavle, J.P. Morgan's head of sales and marketing in Singapore.

"The equity market, because of the fact that the Japanese are moving out of a deflation forever situation ... is beginning to attract a lot of attention - bond markets and swap markets will follow as Japan tends to become a more normal economy."

SWEET SPOT

Previous hiking cycles in Japan took place under such different circumstances that comparisons are tricky.

In 1989-90 it raised rates by more than 300 basis points, bursting a property bubble and crushing the economy and stock market for a decade. In 2006, an attempt to end a zero-rate policy fell flat as inflation couldn't be sustained.

This time investors and policymakers both point to higher wages and changes in companies' attitudes as new elements. Pay negotiation data due on Friday, before the BOJ meets, can move markets especially if it surprises to the upside.

"Markets still underprice any long-term changes in Japan," said Ales Koutny, head of international rates at Vanguard, who is increasing short exposure to Japanese government bonds.

"A wage number high enough that supports consumption could focus minds on a potential longer hiking cycle."

He sees the five- to 10-year tenors as most vulnerable if the BOJ winds back its support and says 10-year yields could surpass 1% and in the longer term trade like German bunds - which yield 2.3% - if wages, consumption and inflation start to reinforce one another.

Two-year Japanese yields, which track short-term rate expectations, have hit 13-year highs at 0.2%, five-year yields and 10-year yields are around multi-month highs of 0.4% and 0.77%, respectively. [JP/]

The yen, after hitting levels near its cheapest on record in real terms, last week climbed 2% for its sharpest weekly jump on the dollar in eight months as short-sellers retreated slightly.

To be sure the journey out of such a long period of unorthodox policy is fraught and the distortions wrought on the economy will take a long time to unwind. Smaller businesses in particular face challenges from higher borrowing costs.

Crowded bets on bank stocks are vulnerable to "sell the fact" losses on a policy shift, says Nomura's Japan macro strategist Naka Matsuzawa. Already, the BOJ's refusal to buy equity funds when markets fell this week has unnerved some investors.

A yen rally to 135 or 130 to the dollar could also trigger worldwide reverberations, investors say, as that would likely trigger "carry" trades funded in yen to be unwound.

Yet, at 147 to the dollar on Wednesday that is a long way away and most see a tentative return of animal spirits to Japan as a positive.

"In 2024, Japan has neither an overheating property market nor is it mired in deflation," said Byron Gill, managing partner at Indus Capital Partners in San Francisco, with real rates - the nominal rate less inflation - likely to stay sub zero.

"If, at the same time, wage growth can overtake the rate of inflation," he said. "Japan may find itself in a real sweet spot for both the economy and for risk assets."

BANGKOK (Reuters) - The Thai industrial sentiment index fell slightly in February due to slower domestic demand and exports, though tourism lent some support, the Federation of Thai Industries said on Wednesday.

FTI said its industrial sentiment index in February slipped to 90.0 from 90.6 in the previous month.

Domestic demand was weaker than in January due to concerns about high living costs and household debt problems, while exports also slowed as the economies of trading partners remained weak, the FTI said.

Thailand's household debt was about 91% of gross domestic product. The central bank has said a debt level higher than 80% of GDP could be a drag on long-term economic growth and pose risks to the country's financial stability.

However, increased tourism, a hey driver of Thai growth, still supported sentiment, the FTI said, adding that another industrial index that projects sentiment over the next three months rose in February.

Thailand received 7.43 million foreign tourists from Jan. 1 to March 10, up 47% year-on-year, government data shows, with spending of 359 billion baht ($10 billion).

China was the biggest source market with 1.36 million visitors.

The government is aiming for a record 40 million foreign visitors this year, after recording 28.15 million arrivals last year.

($1 = 35.6800 baht)

By Jorge Otaola and Miguel Lo Bianco

BUENOS AIRES (Reuters) -Argentina's monthly inflation rate slowed down more than expected to come in at 13.2% in February, a boost for libertarian President Javier Milei who is pushing tough austerity to try to tame the world's fastest-rising prices.

The still sky-high monthly rate, published on Tuesday, marks a deceleration from January, when prices rose 20.6%, and December, when they were up 25.5%. Analysts polled by Reuters had expected February's inflation rate to land at around 15%.

The 12-month rate through February, however, rose to 276.2%, below a poll forecast of 282.1%, but cementing Argentina's position as having the world's worst inflation, which is hammering people's spending power and driving up poverty.

"The impact of the cost of food is just brutal," said Ines Ambrosini, a 62-year-old who shops in wholesale markets to find deals. "Everything costs a lot of money, the food, the fruit, the vegetables, the meat, the dairy products."

Milei, battling an inherited crisis, has rolled out some tough measures to combat inflation, including painful cuts to state spending, targeting subsidies for things like utilities and transport, while looking to streamline welfare programs.

His government devalued the peso by over 50% in December, which caused prices to leap even faster, so he needs to demonstrate - and quickly - that his economic plan is bearing fruit to keep people onside and avoid unrest on the streets.

Sandra Boluch, a fruit and vegetable seller at a market in Buenos Aires, said she was seeing a worrying trend as inflation soars: sliding sales and more people scavenging for what she throws away, hoping to find enough for a meal.

Poverty is heading toward 60%, according to a report in February, while UNICEF warned on Tuesday that child poverty in Argentina could even hit 70% in the first quarter of the year unless protections were strengthened.

"We have some containers in the back where the garbage is disposed of and when you go with a box, you see 20 people coming up to you to see what they can take as a plate of food to their table," said Boluch, adding that the numbers coming was rising.

"The truth is that it's something very tough, very sad because there are a lot of people and a lot of older people."

Milei's office on social media platform X said after the data was published that the slowdown was due to the government's work to impose "strong fiscal discipline." In a sign of confidence on inflation, the central bank late on Monday cut the interest rate to 80% late.

However, the president has signaled that March could be "complicated," as signals in the economy have looked bleak, with tumbling sales, activity and production.

By Caroline Valetkevitch

NEW YORK (Reuters) -U.S. stocks ended sharply higher on Tuesday, with the S&P 500 registering a record high close as Oracle (NYSE:ORCL) shares surged and consumer price data failed to dampen investors' hopes of interest rate cuts in the coming months.

Shares of Oracle jumped 11.7% and reached a record high, a day after it reported upbeat quarterly results and said it is set to make a joint announcement with artificial intelligence chip giant Nvidia (NASDAQ:NVDA).

Nvidia shares gained 7.2% and an index of semiconductors rose 2.1% and snapped a two-day losing streak.

The Labor Department reported that the Consumer Price Index (CPI) rose 0.4% last month after climbing 0.3% in January. Excluding volatile food and energy components, consumer prices increased 0.4% in February after rising by the same margin in January.

"Investors have gotten comfortable with the notion that it's not about when the Fed will lower rates but rather by how much, and a delay - whether it happens in May like many were initially hoping or in September - ultimately doesn't matter," said Oliver Pursche, senior vice president and advisor for Wealthspire Advisors in Westport, Connecticut.

"It's that they will and that a less restrictive environment is coming."

Traders now see a 70% chance of the first rate cut coming in June, the CME FedWatch Tool showed, versus 71% ahead of the inflation report.

The Dow Jones Industrial Average rose 235.74 points, or 0.61%, to 39,005.4. The S&P 500 gained 57.3 points, or 1.12%, at 5,175.24 and the Nasdaq Composite added 246.36 points, or 1.54%, at 16,265.64.

"If you look at economic data, it continues to be pretty strong," Pursche added. "And from my perspective as a consumer, employee and investor, I'd rather have a strong economy and slightly elevated interest rates than a weak economy that requires stimulus."

Producer price data is due later this week.

On the downside, shares of Boeing (NYSE:BA) fell 4.3%. Boeing told employees in a memo on Tuesday it is adding weekly compliance checks for every 737 factory work area and additional audits of equipment to reduce quality problems.

The U.S. Federal Aviation Administration has curbed Boeing production following the mid-air panel blowout on a new Alaska Airlines (N:ALK) 737 MAX 9 jet on Jan. 5.

Also, U.S. carriers warned that their plans to increase capacity were in doubt due to jet delivery delays from Boeing.

Shares of Southwest Airlines (NYSE:LUV) were down 14.9%.

Volume on U.S. exchanges was 10.97 billion shares, compared with the 12.07 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.20-to-1 ratio favored decliners.

The S&P 500 posted 48 new 52-week highs and no new lows; the Nasdaq Composite recorded 59 new highs and 118 new lows.

By Lucy Raitano

LONDON (Reuters) - Corporate dividends globally hit an all-time high of $1.66 trillion in 2023, with record payouts by banks making up half of the growth, a report showed on Wednesday.

On a worldwide basis, 86% of listed companies either increased dividends or maintained them, according to the quarterly Janus Henderson Global Dividend Index (JHGDI) report, which also forecast that dividend payouts would hit a new record of $1.72 trillion this year.

The world's biggest dividend payers in 2023 were Microsoft (NASDAQ:MSFT), followed by Apple (NASDAQ:AAPL) and Exxon Mobil (NYSE:XOM).

The total value of corporate dividends rose from $1.57 trillion in 2022 with underlying growth - which accounts for currency movements, special dividends, timing changes and index changes - of 5% from 2022, UK asset manager Janus Henderson said.

"Corporate cash flow in most sectors remained strong and this provided plenty of firepower for dividends and share buybacks," said Ben Lofthouse, head of global equity income at Janus Henderson.

According to LSEG data, earnings growth for the S&P 500 in the fourth quarter of 2023 was expected to come in at 9% year-on-year.

High interest rates have boosted bank margins and banks paid out a record $220 billion to shareholders in 2023, an underlying rise of 15% from 2022 and continuing a rebound after bank payouts were frozen during the pandemic.

Any positive impact from higher banking dividends was almost entirely offset by cuts from the mining sector, the report found, as lower commodity prices weighed on mining profits.

Hefty dividend cuts by five prominent companies - miners BHP and Rio Tinto (NYSE:RIO) as well as Petrobras, Intel (NASDAQ:INTC) and AT&T (NYSE:T) - reduced the underlying 2023 global dividend growth rate by 2 percentage points.

"Beyond these two sectors (banking and mining), whose impact was unusually large, we saw encouraging growth from industries as varied as vehicles, utilities, software, food and engineering, demonstrating the importance of a diversified portfolio," the report said.

On a geographical basis, Europe (excluding the UK), was a key growth driver, contributing two-fifths of the global increase as payouts rose 10.4% on an underlying basis to $300.7 billion.

Japan was also a major contributor, though it was somewhat tempered by a weak yen, the report said.

While the United States made the most significant contribution to global dividend growth due to its size, a 5.1% growth rate was in line with the global average.

Emerging markets dividends were flat on an underlying basis, with Janus Henderson highlighting steep cuts in Brazil and lacklustre growth in China.

Janus Henderson sees another 5% growth in corporate dividends this year to $1.72 trillion.

Even though the rapid increase in bank dividends is likely to slow, rapid declines from the mining sector might also be less impactful, said Lofthouse.

"Energy prices remain firm so oil dividends look well supported and the big defensive sectors like healthcare, food and basic consumer goods should continue to make steady progress."

By Ankur Banerjee

SINGAPORE (Reuters) -Asian equities rose on Tuesday led higher by Chinese tech firms although investors' main focus was on key U.S. inflation data, while expectations that the Bank of Japan may be ready to exit ultra-easy policy as soon as next week weighed on the Nikkei.

Gold held just below its record peak and the dollar was steady as traders awaited the U.S. consumer price index later in the day to gauge when the Federal Reserve would likely start its rate cutting cycle.

European bourses are set for a strong open, with the Eurostoxx 50 futures up 0.57%, German DAX futures up 0.57% and FTSE futures 0.74% higher.

The spotlight during Asian hours was firmly on Japan after the BOJ refrained from purchasing Japanese exchange-traded funds on Monday even as local shares dropped sharply, stoking speculation a shift away from ultra-loose monetary policy is right around the corner.

A growing number of BOJ policymakers are warming to the idea of ending negative interest rates this month, four sources familiar with the central bank's thinking told Reuters last week.

The changing expectations have helped the yen perk up over the past week and sent the Nikkei beyond the record peak struck last week.

But on Tuesday, the Nikkei closed 0.06% lower, having dropped 1% during the session, while the yen weakened 0.41% to 147.51 per dollar after Bank of Japan Governor Kazuo Ueda hedged his optimism about the economy ahead of the central bank's policy meeting next week.

Futures now imply a 47% chance the BOJ will shift rates to zero at its meeting on March 18-19, though some still think it might wait until its April 26 meeting.

"The question for investors is whether the BOJ will stop at ending negative rates, or start a tightening cycle. We think the former," Frank Benzimra, head of Asia equity strategy at SocGen told the Reuters Global Markets Forum.

Elsewhere, Chinese stocks rose, with Hong Kong's Hang Seng Index up 2.6% led by the tech sector, while the blue-chip CSI300 index inched up 0.23%.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8% to its highest in more than seven months.

INFLATION WATCH

Investor focus will switch to U.S. inflation data due later on Tuesday, with expectations for a monthly increase of 0.4% and 3.1% on an annual basis. Core consumer prices are seen rising 0.3%, which would nudge the annual pace down to 3.7%.

Vasu Menon, managing director of investment strategy at OCBC Bank in Singapore, said if the data comes in higher-than-expected, that could worry investors, but such concerns may be short-lived.

"Markets have come to realise that the path ahead for inflation will be uneven, and higher-than-expected data for one or two months may not alter the medium-term outlook for inflation which is in a broad downtrend."

Market are all but certain that the U.S. central bank will not cut rates when it meets next week but have priced in more than a 70% chance of a rate cut in June, CME FedWatch Tool showed. Traders are pricing in 90 basis points of cuts this year.

Nicholas Chia, Asia macro strategist at Standard Chartered (OTC:SCBFF), said a "soft-ish inflation report" should give markets some relief, sealing the debate over further Fed hikes on concerns of a re-acceleration in price pressures.

"A Fed adamant on cutting rates in the coming months to dial back policy restriction should also provide another leg-up to the risk rally."

A stronger majority of economists in the latest Reuters poll also expect the Fed to start cutting rates in June. The survey showed respondents saw it more likely that if Fed policymakers changed their rate projections at the March meeting, the median view would signal fewer cuts this year, not more.

The yield on 10-year Treasury notes eased a bit to 4.094%, while the dollar index, which measures the U.S. currency against six rivals, was little changed at 102.82, having hit a roughly two-month low of 102.33 last week. [FRX/]

Spot gold eased a bit to $2,175.79 an ounce, but was not far from the record high of $2,194.99 it touched last week. [GOL/]

By Jihoon Lee and Cynthia Kim

SEJONG, South Korea (Reuters) - South Korea won't see a repeat of the sharp home price gains it did in the past as its population rapidly ages and economy slows, the country's land minister said, vowing to promote public rental accommodation to improve access to housing.

"The population is ageing and the economy is growing by just 2% to 3% each year. There is no way house prices will rise as they did in the past," Park Sang-woo, minister of land, infrastructure and transport, said in an interview with Reuters on Monday.

"In the past, the economy grew by 7% to 10% every year, and there were two or three kids in each family. There will never be a 'deja-vu' of that for this generation."

South Korea's median house prices hit a peak in June 2021 after rising 45% over five years, according to Korea Real Estate Board data. It has since fallen 19% following an aggressive interest rate cycle by the central bank.

Still, South Koreans cite high housing costs as the biggest reason behind nose-diving births and marriages. The country's fertility rate, already the world's lowest, hit a fresh record low in 2023.

According to the ministry's annual survey, house prices in 2022 were 6.3 times higher than households' annual income, easing slightly from 6.7 in 2021. In the capital Seoul, however, the price-to-income ratio was 15.2, up from 14.1 a year earlier.

The government is working to provide a more affordable housing.

This year, it has rolled out cheap mortgages for newly weds who plan to have a baby. To restore work-life-balance in the wider Seoul area where 45% of population live, the government plans a high-speed underground rail network to connect less expensive housing markets in outskirts of Seoul to jobs in the city's centre.

At the same time, the government will provide a greater range of long-term public rental homes through the corporate sector by easing regulations.

It will also help young people invest in assets other than real estate, he said.

With real estate demand still weak, Park said he shared the views of financial authorities that unprofitable property projects needed to be restructured.

Last December, Taeyoung Engineering & Construction, a mid-sized South Korean builder, rescheduled its debt, fanning concerns about debt repayment troubles in the sector.

"The structure of real estate project financing, which had worked just fine, is now being shaken by slowing demand and rising input costs," Park said. "We are making various efforts to stop that."

By Simon Lewis and Humeyra Pamuk

WASHINGTON (Reuters) - The United States must employ "all the tools at our disposal" to outcompete China, a top U.S. State Department official said on Monday, as the Biden administration unveiled its budget request for the 2025 fiscal year.

The request includes $4 billion over five years in mandatory funding for this purpose, including $2 billion to create a new international infrastructure fund to provide a credible, reliable alternative to Chinese infrastructure funding, Deputy Secretary of State for Management and Resources Rich Verma told a news briefing.

The other $2 billion was earmarked for "game-changing investments" to help Indo-Pacific countries push back against "predatory efforts," he said, adding that those would include efforts to improve governance and the rule of law.

The State Department requested a separate $4 billion in discretionary funding to cover foreign assistance and diplomatic engagement in the region.

U.S. efforts to fund infrastructure in developing countries have long been dwarfed by China's massive Belt and Road Initiative, a 10-year-old project to build infrastructure and energy networks connecting Asia with Africa and Europe through overland and maritime routes.

According to a report by U.S. researchers last November, Chinese financial institutions lent $1.34 trillion to developing countries from 2000 to 2021.

"We must employ all the tools at our disposal to outcompete China, wherever possible," Verma said, also referring to China by the initials of its official name, the People's Republic of China (PRC).

He said the request for fiscal 2025 would allow the U.S. "to continue to invest in the foundations of our strength at home, align with like-minded partners to strengthen our shared interests and address the challenges posed by the PRC, and harness those assets to compete with the PRC and defend our interests."

Verma said the infrastructure fund would support "transformative, quality and sustainable hard infrastructure projects."

At the 2023 G20 Summit in India, U.S. officials said President Joe Biden and Indian Prime Minister Narendra Modi co-hosted a group of G20 leaders to accelerate investments in high-quality infrastructure projects and development of economic corridors through a Partnership for Global Infrastructure and Investment (PGI).

This came after the Group of Seven rich Western countries leaders pledged in 2022 to raise $600 billion in private and public funds over five years to finance needed infrastructure in developing countries and counter the Belt and Road project.

Overseas finance has won Beijing friends across the developing world, while drawing criticism from the West and in some recipient countries, including Sri Lanka and Zambia, that infrastructure projects it funded saddled them with debt they were unable to repay.

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The yen drifted higher against the U.S. dollar for a fourth straight session on Monday, bolstered by an upward revision to Japan's growth figures and expectations the Bank of Japan could exit negative rates at its policy meeting next week.

In cryptocurrencies, bitcoin soared to a fresh record high above $72,000 underpinned by a surge in inflows into new spot exchange-traded funds for the digital asset. Hopes that the Federal Reserve will soon cut interest rates have also lifted bitcoin, which was last up 5.3% at $72,033 .

The market though remains focused on the yen and BOJ.

In afternoon trading, the dollar was at 146.94 yen, down 0.1% on the day.

A growing number of BOJ policymakers are warming to the idea of ending negative rates at their March 18-19 meeting, sources told Reuters, amid expectations for hefty pay rises from Japan's biggest firms. Results of this year's annual "shunto" wage negotiations are due on Wednesday.

At the same time, an upward revision to Japan's economic growth last quarter meant the country avoided a technical recession, adding to the argument the economy could weather tighter policy.

"We have gone from focusing on the April meeting for the BOJ to make a rate move to March. But I prefer a policy move in April right now," said Amo Sahota, executive director at FX consulting firm Klarity FX in San Francisco.

"They have been slow to act all this time, so what's the hurry now all of a sudden. We had the GDP revision but there's nothing there that says Japan is about to go explosive in growth and prices that they need to come in really hard right now. I think they have little more capacity to wait."

The dollar index rose 0.2% to 102.85, not far from the nearly two-month low of 102.33 reached on Friday when monthly payrolls figures signalled a cooling U.S. labor market, keeping the Fed on track to ease policy this year. The data did show downward revisions to January's blowout number.

"(Fed Chair Jerome) Powell has said time and time again that the Fed has been looking for softening in the labor market, and it appears Friday's release - though on the surface quite hot - might have shown the cracks necessary to move the needle earlier," said Helen Given, FX trader, at Monex USA in Washington.

Traders currently see June as most likely for the first cut, bets that could be moved by important consumer price index inflation data on Tuesday.

The euro slipped 0.1% to $1.0924 after jumping as high as $1.0980 on Friday for the first time since Jan. 12. The European Central Bank left rates at record highs last Thursday while cautiously laying the ground to lower them later this year.

Sterling dropped 1.1% against the dollar to $1.2807, after pushing to the highest since late July at $1.2890 on Friday amid bets the Bank of England will be slower to cut rates than the Fed or ECB. The British currency faces a test on Tuesday with the release of jobs and wage data.

Investors will be focused on Tuesday's consumer prices index (CPI) report, with the market forecasting headline CPI for February to rise 0.4%, from 0.3% in January, according to a Reuters poll.

Core CPI, on the other hand, is seen at 0.3%, down from 0.4% in January. The year-on-year core CPI, however, is expected to have slipped to 3.7% in February, from 3.9% in the previous month.

"When you look at CPI, you're really thinking about (Fed Chair Jerome) Powell's comments that they just need a little more evidence," said Klarity FX's Sahota. "And even if that evidence is showing that inflation is the same as it has been, then that's good enough for them to feel better conviction that they want to take rates lower."

The Australian dollar was down 0.2% at US$0.6610 after jumping last week as the U.S. dollar fell on the back of the slowdown in the labor market.

(This story has been refiled to add the analyst's name in paragraph 16)

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks retreated for a second straight session on Monday, easing further from a record high ahead of U.S. inflation data this week which could heavily influence the Federal Reserve's interest rate path.

Stocks have hit multiple record highs this year, but declined on Friday following a mixed U.S. payrolls report that did little to alter expectations for the Fed to begin cutting rates in June.

U.S. inflation data is due on Tuesday in the form of the consumer price index (CPI), with expectations for a monthly increase of 0.4% and 3.1% on an annual basis.

The Dow Jones Industrial Average rose 46.97 points, or 0.12%, to 38,769.66. The S&P 500 lost 5.74 points, or 0.11%, at 5,117.95 and the Nasdaq Composite fell 65.84 points, or 0.41%, to 16,019.27.

"There are two ways stocks can get hit here - in the very, very near-term you can get an upside surprise to CPI and you get further inversion of the yield curve and that just kind of punts the eventual reckoning down the street a few blocks," said Brian Nick, senior investment strategist at The Macro Institute in New York.

"But what we're more concerned about is that there's emerging weakness in a lot of the current activity."

U.S. Treasury yields edged up ahead of the data, with the benchmark U.S. 10-year notes up 1 basis point at 4.098%, from 4.088% late on Friday. The 2-year note yield, which typically moves in step with interest rate expectations, rose 5 basis points to 4.536%.

The Fed is scheduled to release its next policy statement on March 20 and investors have all but ruled out a cut, with expectations at 97% the Fed will hold rates steady, according to CME's FedWatch Tool.

Last week, comments from Fed Chair Jerome Powell and European Central Bank policymakers buoyed expectations that rate cuts will begin this summer. Expectations for a cut of at least 25 basis points (bps) at the June meeting are currently above 70%.

MSCI's gauge of stocks across the globe fell 2.55 points, or 0.33%, to 768.75.

The STOXX 600 index closed down 0.35%, while Europe's broad FTSEurofirst 300 index ended down 6.47 points, or 0.32%, weighed down by technology sector declines.

The dollar index gained 0.17% at 102.85, with the euro down 0.12% at $1.0924. Sterling weakened 0.37% at $1.281.

The Japanese yen strengthened 0.09% against the greenback at 146.94 per dollar. The yen had strengthened earlier in the day after Reuters reported a growing number of Bank of Japan policymakers are warming to the idea of ending negative interest rates this month.

In addition, data released on Monday showed Japan was not in recession after economic growth was revised up to an annualized 0.4% for the December quarter.

Crude prices were mixed, as U.S. crude settled down 0.1% at $77.93 a barrel and Brent settled at $82.21 per barrel, up 0.16% to on the day as concerns eased that fighting in the Middle East would disrupt supply and Chinese data suggested weak demand, while an increase in U.S. refining limited any selling.

In cryptocurrencies, bitcoin gained 5.37% at $72,090.50 after hitting a record $72,901.94.