Asian and European markets rallied on Monday, building on last week's advances and following a strong pre-weekend performance on Wall Street as speculation that inflation may have peaked tempered expectations about central bank interest rate hikes.

With prices surging at a pace not seen in a generation, finance chiefs have been forced to lift borrowing costs and wind back their ultra-loose monetary policies in recent months, sending a chill across trading floors. But a string of weak data has led many investors to believe that inflation may have plateaued or is about to, giving room for banks to be less hawkish.

The prospect that rates will not go as high as initially expected helped send Wall Street stocks higher on Friday, with the S&P 500 and Nasdaq ending up more than three per cent.

Asia and Europe continued the rally on Monday.

Hong Kong led gainers, climbing more than two per cent thanks to a strong performance in Chinese tech firms. 

Indications that China's crackdown on the sector could be coming to an end added to the upbeat mood in the city.

"Market conviction that perhaps the Fed won't now hike rates as aggressively as previously feared and/or that rate cuts before the end of 2023 are now an even more realistic prospect... have had a big hand" in boosting sentiment, said National Australia Bank's Ray Attrill.

Market conviction that perhaps the Fed won't now hike rates as aggressively as previously feared and/or that rate cuts before the end of 2023 are now an even more realistic prospect... have had a big hand" in boosting sentiment- National Australia Bank's Ray Attrill

While Fed chiefs continue to flag further big interest rate hikes in the pipeline, expectations for a prolonged period of increases have waned, which has in turn taken some heat out of the dollar.

Bitcoin has also won some support, trading above $21,000 after a recent slump.

G7 action over Russia

Elsewhere, traders were keeping a close eye on the G7 summit in Germany, focused on further co-ordinated financial action against Russia following its invasion of Ukraine.

Among the new action being weighed by the G7 was a price cap on Russian oil imports and fresh sanctions on Russia's defence sector, the White House said.

G7 member France meanwhile urged oil producers to ramp up crude output by 'exceptional' volumes owing to Russian supply constraints.

The group – comprising also Britain, Canada, Germany, Italy, Japan and the United States – kicked off their gathering on Sunday by announcing plans to ban imports of Russian gold.

It was the latest in a series of sanctions aimed at punishing President Vladimir Putin for his February 24 invasion.