LONDON – Wall Street indexes on Monday rose from their worst week in several months, with economically sensitive stocks leading gains as focus turned to potential changes to corporate tax and monetary policy. 

But gains in the Nasdaq were held back by major technology stocks as investors pivoted to sectors more likely to benefit from an economic bounce back this year.

At 09:51 am ET, the Dow Jones Industrial Average rose 271.31 points, or 0.78 percent , to 34,879.03, the S&P 500 gained 21.74 points, or 0.49 percent, to 4,480.32 and the Nasdaq Composite gained 11.51 points, or 0.08 percent, to 15,127.01.

Meanwhile, world stocks started the week on the back foot, slipping to 2-1/2 week lows on further signs of accelerating inflation.

Equity markets are down so far in September after a seven-month winning streak. They have been pressured by inflation which may prove less transitory than flagged by central bankers.

After Wall Street's worst run since February, futures, hint at a firm opening and European shares also rose. However, MSCI's world stocks benchmark slipped 0.1 percent and an index of Asia-Pacific shares outside Japan lost 0.8 percent.

Adding to concerns is the continued acceleration in inflation, with Japan reporting wholesale prices at 13-year highs last month. That comes on top of data showing factory gate inflation at more than decade-highs in the United States, pressuring firms to pass on price rises to consumers.

"The market has been looking through inflation levels, assuming they are transitory and that interest rates won't go up much but the conundrum is that wherever we look, we see inflation, whether on supermarket shelves or at the petrol pump," O'Hara added.

"We will probably see more inflation and interest rate rises than people think."

Inflation in focus

Indeed, a market gauge of euro zone inflation expectations rose to its highest since mid-2015 on Monday as supply bottlenecks and stronger than expected inflation prints encourage investors to seek inflation protection.

Inflation in the bloc will "in all likelihood" ease as soon as next year but the European Central Bank is ready to act if it doesn't, ECB policymaker Isabel Schnabel said.

US consumer prices, due on Tuesday, are a key focus for markets with the core measure seen easing a touch, albeit to a still-high 4.2 percent.

"We believe that global reflation is still alive and this narrative of rapidly weakening growth – we don't see much evidence for this at all," said Mike Riddell, head of macro unconstrained at Allianz Global Investors.

"Of course we can change our minds, but our view is that it's the bond market that's wrong, and we're going to start seeing higher real yields and higher nominal yields as central banks start to catch up with what is a very strong global economy right now."

Banks continue to flag caution. A Deutsche Bank survey found market players expect a 5-10 percent equity market correction by year-end, with COVID-19 and inflation seen as the main risks.

BNP Paribas, while expecting the S&P 500 to stay unchanged by end-2021, highlighted risks from "higher yields and taxes, at a time when earnings momentum has slowed from excellent to good".

US 10-year Treasury yields, currently at around 1.33 percent, posted their third weekly rise last week, the longest streak since mid-March .

The general air of risk aversion helped lift the dollar index to 92.86, up 0.24 percent and off recent lows of 91.941.

Oil prices were at one-week highs above US$73 a barrel due to shuttered output in the United States, the world's biggest producer, following damage from Hurricane Ida .