Wall Street gains, dollar softens as weak data signals Fed pause

U.S. stocks ended higher and the dollar extended its losses on Wednesday, as a slew of disappointing economic data raised the probability that the Federal Reserve will press the pause button in its efforts to rein in inflation.

All the three major U.S. stock indexes advanced, with the Nasdaq enjoying the biggest percentage gain. The blue-chip Dow closed only nominally higher.

With one more trading day remaining in August, all three indexes are on track for monthly losses, with the S&P 500 notching its biggest monthly percentage drop since February, and the tech-laden Nasdaq setting a course for the largest monthly slide this year.

A barrage of economic indicators generally surprised to the downside, including private payrolls clocking a 52.3 per cent monthly drop and second-quarter GDP revised significantly lower, to 1.7 per cent on a quarterly annualized basis.

Weak economic data could be good news for interest rates, as it could give the Federal Reserve a rationale for letting key interest rates stand at next month's monetary policy meeting.

"It's pretty clear that the Fed's tightening is having its desired effect and that's being reflected in job creation and job opening numbers," said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. "For now, it's likely from a statistical perspective we won't see a recession this year."

Thomas Martin, senior portfolio manager at GLOBALT in Atlanta, agreed.

"(The data) fits with the idea that central banks have another data point that makes them more comfortable with holding steady rather than opting for further rate increases," Martin said.

Financial markets have currently priced in a 88.5 per cent likelihood of a September Fed pause, according to CME's FedWatch tool.

The Dow Jones Industrial Average rose 37.7 points, or 0.11 per cent, to 34,890.37, the S&P 500 gained 17.24 points, or 0.38 per cent, to 4,514.87 and the Nasdaq Composite added 75.55 points, or 0.54 per cent, to 14,019.31.

Across the Atlantic, European stocks closed modestly lower, easing off a two-week high as weakness in the utilities sector was countered by gains in insurance and basic resources.

The pan-European STOXX 600 index lost 0.15 per cent and MSCI's gauge of stocks across the globe gained 0.46 per cent.

Emerging market stocks rose 0.11 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.41 per cent higher, while Japan's Nikkei rose 0.33 per cent.

The greenback extended its losses, touching a two-week low against a basket of world currencies in the wake of disappointing economic data.

The dollar index (.DXY) fell 0.32 per cent, with the euro up 0.4 per cent to $1.0921.

The Japanese yen weakened 0.26 per cent versus the greenback at 146.29 per dollar, while Sterling was last trading at $1.2717, up 0.63 per cent on the day.

U.S. Treasury yields were essentially flat in choppy trading after touching three-week lows early in the session, as slower-than-expected economic growth lowered the possibility of further interest rate hikes in the next few months.

Benchmark 10-year notes last rose 1/32 in price to yield 4.1178 per cent, from 4.122 per cent late on Tuesday.

The 30-year bond last rose 4/32 in price to yield 4.2294 per cent, from 4.237 per cent late on Tuesday.

Crude prices edged higher as industry data showed tighter-than-expected supply as investors digested Hurricane Idalia's potential effect on demand.

U.S. crude rose 0.58 per cent to settle at $81.63 per barrel, while Brent settled at $85.86 per barrel, up 0.43 per cent on the day.

Gold prices advanced in opposition to weakness in the U.S. dollar.

Spot gold added 0.3 per cent to $1,943.15 an ounce.