US stocks on Friday rose to records as retail sales sparked optimism in the economy and JPMorgan Chase signalled tax cuts will bolster profits.

The underlying pace of US inflation unexpectedly accelerated in December amid increased housing costs, reinforcing the outlook for the Fed to raise interest rates several times in 2018.

“As the probability of three to four rate hikes become solidified, it has a major impulse into the equity markets,” said Chad Morganlander, a portfolio manager at Washington Crossing Advisors.

“I don’t think that’s priced in. The markets have to readjust to the reality of what the Fed will do.”

The S&P 500 rose 0.7 per cent to 2786.24 in New York. The index rose 1.6 per cent in the week and is now higher by 4.2 per cent in January.

BlackRock charged past a record $US6 trillion in assets, its profit beating Wall Street forecasts, as investors flooded into the relatively low-cost funds of the world’s largest asset manager.

Bank profit reporting season continues with Citigroup (Tuesday), Goldman’s, BoAML (Wednesday) and Morgan Stanley (Thursday).

Dealmaking activity drove sharp share price moves in Europe on Friday with British engineer GKN leaping after it rejected an unsolicited offer from rival Melrose.

A gain of over 26 per cent in GKN and strength in the auto sector led a broad-based rally, helping the pan-European STOXX 600 benchmark end 0.3 per cent higher following losses in the previous two sessions.

While the STOXX posted its second week of gains in a row with a 0.3 per cent rise, it was a far cry from the 2 per cent rally in the opening week of 2018 as a strengthening euro and expectations that the European Central Bank could reduce its stimulus sooner than expected cooled down the new year’s euphoria.

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