The first acceleration by China’s giant economy in seven years kept stocks near record highs on Thursday, but added to growing pressure on bond markets as U.S. Treasury yields – the benchmark for global borrowing costs – cranked to a 10-month high.

People are reflected in a display showing the Nikkei average (top in L) and the NASDAQ average of the U.S outside a brokerage in Tokyo, Japan, November 7, 2016. Photo: REUTERS/Kim Kyung-Hoon – S1AEULJVTGAA

Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 percent and December industrial output growth of 6.2 percent were ahead of expectations.

Most Asian bourses were closing when the data landed but had briefly set a new all-time record after the U.S. bluechip Dow Jones Industrial .DJI had closed above 26,000 points for the first time. [.N]

China’s yuan CNY=CFXS finished strongly to hit its highest since December 2015. Europe’s main FTSE, Dax and CAC40 markets then ticked higher too[.EU], though moves were choppy in the cross currents of both a rising euro and bond yields. [GVD/EUR]

After a week of trying, the 10-year U.S. Treasury yield passed 2.6 percent to hit its highest since March 2017. US10YT=RR It drove European counterparts up too with Germany’s 10-year bond yield, the region’s benchmark, near a 5-1/2 month top at 0.52 percent.

With such encouraging data coming though, “the likelihood we have higher inflation in the big economies is well over 50 percent, so that is the next turning point for the markets,” said SEB investment management’s global head of asset allocation Hans Peterson.

He added it raised two big questions. How will central banks respond? And will the rise in bond yields happen at such a pace that it impacts optimism around assets like equities?

“We are going to change the regime probably within the next 2-3 months,” he said. “Will it be accompanied by rising producer prices? If so then we can live with higher bond yields, otherwise it is a problem for us.”

The break higher in U.S. yields also lifted the dollar off a three-year low hit earlier in the day in Asia.

Ahead of U.S. trading though, the euro was regaining traction and last stood at $1.2245 EUR=, up 0.5 percent on the day but well below a peak of $1.2323 set on Wednesday, the euro’s strongest level since December 2014.

Top ECB policymakers were speaking in Frankfurt. Some may have been caught off guard by the speed of the euro’s appreciation, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore.

“Maybe they are trying to manage volatility or slow down the rise,” Lee said referring to Austria’s Ewald Nowotny who told reporters on Wednesday that the euro’s recent strength against the dollar was “not helpful.”

Wall Street was expected to tick fractionally higher when it resumes in New York with traders there bracing for another deluge of company fourth quarter results as well as some closely followed housing market data. [ECONALLUS]

Elsewhere, the Canadian dollar eased about 0.1 percent to C$1.2450 CAD=D3, having see-sawed after the Bank of Canada raised interest rates but sounded a cautious tone on the future of the North American Free Trade Agreement (NAFTA).

Emerging markets were digesting a number of key interest rate meetings including Turkey which kept its rates on hold having seen last year’s 18 percent slump in the lira versus the euro drive inflation back into double digits.

South Africa’s central bank was due next at 1300 GMT. After being sickly for much of 2017, a sounder political backdrop has seen the rand surge. ZAR= It is one of the best performing currencies in the world so far this year, fuelling talk of a possible rate cut. [EMRG/]

“The South Africa meeting is the big show today. People are in it, they want to like it they want to own it,” said UBP’s EM macro and FX strategist Koon Chow. “So any dovishness or a cut would be another trigger for another leg higher.”

The rising U.S. bond could cause turbulence for EM debt markets, however. As well as the gains for benchmark Treasuries, The two-year yield US2YT=RR hovered at a nine-year high of just over 2 percent.

“In emerging markets we are trained like dogs,” Chow said about the rising yields. “When we hear that bell ring we want to just run,”

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains. [O/R]

U.S. crude futures LCOc1 were 10 cents higher at $64.07 a barrel have hit a three-year high of $64.89 on Tuesday.

Spot gold XAU= was steady at $1,333 an ounce, with the dollar’s bounce pulling it back from a four-month high of $1,344.43 set on Monday. [GOL/]