Asian shares rallied and European stocks ticked higher after data showed that inflation in the US had steadied, boosting investors’ hopes that the Federal Reserve will soften its approach to tackling rising prices.

In Europe, the Stoxx 600 gained 0.4 per cent at the open, while the FTSE 100 slipped 0.2 per cent and Germany’s Dax index gained 0.3 per cent.

In Asia, Hong Kong’s Hang Seng index rallied, gaining 2.1 per cent, as it caught up with the market’s positive reaction to news that US consumer price index data was better than forecast.

The CPI data showed that inflation rose 8.5 per cent year on year in July. The print came in below economists’ forecasts of 8.7 per cent, encouraging investors who hope that the Federal Reserve will temper its aggressive rate rises to curb inflation. The Fed has raised interest rates by 0.75 percentage points in two consecutive meetings over the summer.

The S&P 500 rose 2.1 per cent on Wednesday, while the technology-heavy Nasdaq rose 2.9 per cent, bringing its gains to 20.7 per cent from a low in mid-June.

But Mary Daly, president of the San Francisco branch of the Fed, told the Financial Times it was too early to “declare victory” over inflation.

Daly said that a half-percentage point rise in September was her “baseline” but she did not rule out another 0.75 percentage point rise.

US stocks looked set to continue their rise on Thursday but at a slower pace, with futures tracking the blue-chip S&P 500 up 0.3 per cent.

Market watchers reiterated Daly’s positive but cautious tone. “Even as markets have been celebrating the prospect of a less aggressive Fed, it’s worth remembering that we’re still nowhere near out of the woods yet, and annual inflation of 8.5 per cent is still way above what we’ve been used to experiencing over recent decades,” wrote Henry Allen, an analyst at Deutsche Bank.

Bonds also continued their rise following the release of the data, with the yield on the two-year Treasury note, which moves with interest rate policy, dropping 0.02 percentage points to 3.19. The yield on the US 10-year Treasury fell by 0.01 percentage points to 2.77.

In currency markets, the dollar was flat against a basket of six currencies after it fell 1.1 per cent on Wednesday, with the euro and yen holding on to gains made after the inflation data.