While you were sleeping: Yellen comments lift Dow to record close

Wall Street and US Treasuries rallied after US Federal Reserve chairwoman Janet Yellen flagged that lower-than-expected inflation would likely keep the pace of interest rate increases in check.

"The federal funds rate would not have to rise all that much further to get to a neutral policy stance," she said in her semiannual testimony to Congress, speaking before the House Financial Services Committee on Wednesday.

At the close of trading in New York, the Dow Jones Industrial Average climbed 123.07 points, or 0.6%, to a new all-time high of 21,532.14.

The Nasdaq Composite Index rallied 1.1% to 6261.17 and the Standard & Poor's 500 Index advanced 0.7% to 2443.25 in the biggest one-day gains since June 28.

US Treasuries advanced, sending yields on the 10-year note four basis points lower to 2.325%  from 2.362% on Tuesday.

"Considerable uncertainty always attends the economic outlook," Mrs Yellen says. "There is, for example, uncertainty about when-and how much-inflation will respond to tightening resource utilisation."

"Inflation continues to run below our 2% objective and has declined recently."

Yellen to give more testimony
She will speak again before the Senate Banking Committee on Thursday.

"It was a little bit more dovish than most had thought," Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, told Reuters

"She said rates won't have to rise much further to get to neutral, I thought that was key," he says.

"She said inflation response to economy is a key uncertainty, alluding to the inflation again, part of the dovishness."

The Dow's rise was led by gains in shares of DuPont and those of Microsoft, up 2.7% and 1.5% respectively. Shares of JP Morgan Chase and those of Travelers posted the only percentage declines.

"We thought that it was pretty balanced and a pretty steady continuation of the themes" that Yellen had laid out after the Fed's meeting last month, Michael Feroli, chief US economist at JPMorgan Chase in New York, told Bloomberg.

"It was pretty straight down the middle."

American Airlines boosts revenue
Meanwhile, shares of American Airlines rallied 4% after it upgraded its forecast for its second-quarter total revenue per available seat mile (TRASM).

"The improvement in TRASM from prior guidance is driven primarily by higher passenger yields, with particular strength in the domestic, Central/South American, and Caribbean regions," the airline said in a statement.

The Bank of Canada raised interest rates for the first time in seven years, joining a growing group of global central bankers signalling they are on course to dial back on ultralow interest rates.

Meanwhile, higher oil prices boosted shares of energy companies, with US crude for August delivery up 1% at $US45.49 a barrel.

In Europe, the Stoxx 600 Index ended the day with a 1.5% increase from the previous close. The UK's FTSE 100 Index rose 1.1%, Germany's DAX Index added 1.5% and France's CAC40 Index gained 1.6%.

(BusinessDesk)