Microsoft rally lifts stocks, 30-year Treasury yield hits 19-year peak

By Karen Brettell

July 30 (Reuters) - U.S. stocks gained on Thursday as Microsoft's forecast-beating results eased investor worries about massive AI spending by companies, while 30-year Treasury yields scaled a 19-year peak after the Federal Reserve left interest rates unchanged on Wednesday, stoking concerns about longer-term inflation.

The Japanese yen also gained sharply, prompting speculation that Japanese officials intervened ‌to shore up the beleaguered currency.

Microsoft rose 17% after the company forecast current-quarter sales and cloud growth that beat expectations, issued a capital expenditure outlook below Wall Street estimates, and ‌said it expects to keep generating cash through the just-started fiscal 2027.

Investors have been rattled by rising AI costs at big technology firms even as they report strong earnings. Negative cash-flow reports from Alphabet and Tesla last week sparked a bout of ​selling in AI-linked stocks, with chip stocks also under pressure as investors questioned high valuations.

"We don't think the AI story is over by any means, but clearly there's scope for bumps along the way," said Sanjiv Tumkur, head of equity research at Rathbones.

The Dow Jones Industrial Average rose 1.03% to 52,127.62, the S&P 500 gained 1.44% to 7,421.41 and the Nasdaq Composite was up 2.55% at 25,065.84.

The MSCI All Country World Price index rose 1.37% after earlier falling to its lowest level since June 11.

South Korea's KOSPI fell 1.23% to end its third consecutive day in the red.

The pan-European STOXX 600 index rose 0.77%, while Europe's broad FTSEurofirst 300 ‌index rose 0.80%.

30-YEAR YIELDS HIGHEST SINCE 2007

Longer-dated Treasury yields extended Wednesday's ⁠sharp rise after the Fed's decision to hold interest rates steady raised fears that inflation — already running well above the Fed's target — could climb further.

The decision to leave policy on hold drew dissents from three of the 12 FOMC members, who had wanted a quarter-percentage-point hike instead. Fed Chairman Kevin Warsh's preference for less ⁠forward guidance has left traders even less certain of the Fed's next move.

Warsh noted that bond yields had risen notably since the Fed's last policy meeting, reflecting investors pricing in future rate increases. He welcomed that move, while adding that it did not mean the central bank needed to ratify it with action of its own.

"The strategy behind pulling back on forward guidance is forcing the market to take responsibility and enlisting the market in helping ​him ​do his job," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.