By Chuck Mikolajczak

NEW YORK (Reuters) – A gauge of global stocks climbed for a fifth straight day on Friday, with the two-year U.S. Treasury yield set to decline for the first time in nine quarters as U.S. inflation data fueled hopes the U.S. Federal Reserve may be nearing the end of its rate hiking cycle.

U.S. consumer spending rose moderately in February, and while inflation cooled, it remained elevated enough to possibly allow the Federal Reserve to raise interest rates one more time this year.

(Graphic: Fed’s preferred inflation gauge eases – https://www.reuters.com/graphics/PCE-INFLATION/zdpxdqzbmpx/chart_eikon.jpg)

Additional data showed U.S. consumer sentiment fell for the first time in four months in February on concerns of an impending recession, although the impact of the recent banking crisis was muted.

Expectations for a 25 basis point rate hike at its May meeting dipped down to about 50%, with no hike seen to be just as likely.

On the heels of the inflation data, Boston Federal Reserve president Susan Collins said it remains “early days yet” for the central bank in determining whether the Fed has hiked rates enough to lower inflation to its 2% target.

“We are hanging on every Federal Reserve speech and comment because the path of the Fed has really been what is driving the market,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.

“We have to kind of get past the Fed and for now this morning’s data certainly told us something about maybe what the Fed reaction function may be but it hasn’t put us past the Fed yet.”

On Wall Street, U.S. stocks were higher, with the S&P 500 set to notch its second straight quarterly gain, thanks in part to its third straight weekly advance this month. The Nasdaq Composite, up nearly 16% in the first-quarter, was set to snap a streak of four straight quarterly declines.

On the session, The Dow Jones Industrial Average rose 234.7 points, or 0.71%, to 33,093.73, the S&P 500 gained 33.39 points, or 0.82%, to 4,084.22 and the Nasdaq Composite added 129.32 points, or 1.08%, to 12,142.79.

European shares were also higher, after a reading of inflation in the euro zone dropped by the most on record in March, although the core price growth, which excludes food and energy, accelerated.

The pan-European STOXX 600 index rose 0.66% and MSCI’s gauge of stocks across the globe gained 0.75%.

Even with a slight decline for the month, the STOXX index is on pace for a second straight quarterly gain. MSCI’s index was poised for a fifth straight session of gains, it’s longest streak in two months.

Expectations the Fed may be nearing the end of its rate hiking cycle have helped send U.S. Treasury yields lowerrecently. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 0.7 basis points at 4.106% on the day after touching a low of 4.083%.

The two-year yield is set to decline for the first time in nine quarters after a drop of nearly 70 basis points in March, the biggest monthly drop since January 2008 during the financial crisis. Ten-year yields are more than 35 bps lower this month to 3.519%, confounding those who had expected the opposite after big rises in February.

Benchmark 10-year notes were down 3.3 basis points to 3.519%, from 3.551% late on Thursday.

The dollar pared some gains against the euro in the wake of the U.S inflation data, as investors see the Fed pausing its rate hiking cycle before the European Central Bank.

The dollar index rose 0.117%, with the euro down 0.25% to $1.0874. The dollar index is on pace for its second straight quarterly decline.

The Japanese yen weakened 0.13% versus the greenback at 132.80 per dollar, while Sterling was last trading at $1.2375, down 0.06% on the day.

Oil prices were higher on the session, but likely to see their biggest monthly decline since November.

U.S. crude recently rose 1.29% to $75.33 per barrel and Brent was at $79.62, up 0.44% on the day.

(This story has been refiled to add a dropped letter in the headline)

(Reporting by Chuck Mikolajczak, Editing by Angus MacSwan)