GLOBAL MARKETS-Wall Street holds on to year-end highs; precious metals keep their lustre

By Isla Binnie and Ankur Banerjee

Dec 26 (Reuters) - Major U.S. stock indexes traded near record peaks on Friday in muted post-Christmas trading, while expectations of Federal Reserve interest rate cuts helped propel precious metals prices to all-time highs.

Public holidays kept markets closed in Australia, Hong Kong and most of Europe, but the bourses that were open pushed towards ending the year in positive territory, with Asian stocks rising to multi-week highs in their trading session earlier.

The benchmark S&P 500 .SPX was 0.07% higher in morning trading in New York, the blue-chip Dow Jones Industrial Average .DJI rose 0.03% and the Nasdaq Composite .IXIC rose 0.03%, with all three set for double-digit yearly gains.

Megacap tech companies have driven the S&P 500 higher in 2025, and investors have been branching out to cyclical sectors including financials and materials, broadening the upswing and leaving the main U.S. indexes set for a third straight year of gains.

Data suggesting the U.S. economy is resilient, paired with the possibility that a new central bank chair to replace Jerome Powell could look to cut rates next year, is supporting markets.

Pressure on AI stocks stemming from concerns over high valuations and profit-sapping capital expenditures has also lessened.

Geopolitical tensions enhanced the safe-haven appeal of precious metals the day after the U.S. carried out airstrikes against Islamic State militants in northwest Nigeria. Silver hit an all-time high of $75.62 per ounce, on a 161% year-to-date surge, supported by supply deficits and the metal's designation as a U.S. critical mineral.

A weakening dollar further burnished dollar-denominated gold XAU= for overseas investors, sending an ounce up 1.45% to $4,544.

Soojin Kim, commodities analyst at MUFG, said in a note the rally could continue, supported by "major banks forecasting further gains into 2026, the strength of physical demand and persistent geopolitical and monetary uncertainties".

DOLLAR'S DECEMBER BLUES

Investors are preparing for 2026 focused on when the U.S. Federal Reserve might further cut rates and by how much, with traders pricing in at least two cuts over the year, although they do not expect the Fed to move before June.

The central bank itself has projected one more cut next year but divisions among decision makers has left investors on edge about the U.S. policy outlook.

Markets are also waiting for President Donald Trump to nominate a Fed chair to replace Powell, whose term ends in May. Any signal of what Trump will decide could sway markets in the coming week.

The U.S. dollar has been under pressure as a result, pushing the euro EUR=, sterling GBP= and the Swiss franc CHF= to highs. The dollar index =USD, which measures the U.S. currency against six rivals, fell 0.02% to 97.93 on Friday.

The Japanese yen JPY= softened against the dollar on Friday as investors remained on watch for potential intervention to shore up the currency. Analysts say year-end trading, when volumes are thin, provide an opportunity for authorities to take action.

The yen has weakened despite the Bank of Japan delivering a well-telegraphed interest rate hike last week. Data on Friday showed that core consumer inflation in Japan's capital slowed in December but stayed above the central bank's 2% target, bolstering the case for further rate hikes.