U.S. shares gain, European shares dip on Fed rate hike bets

August 28, 2016 8:46 PM EDT

A man walks past a screen displaying the Nikkei average outside a brokerage in Tokyo, Japan, June 24, 2016. REUTERS/Thomas Peter


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By Sam Forgione

NEW YORK (Reuters) - U.S. stock markets climbed on Monday while European share markets slipped in the wake of comments by top Federal Reserve officials that bolstered expectations for an interest rate hike by the U.S. central bank this year.

Fed Chair Janet Yellen said on Friday the case for a rate increase was strengthening, but provided little detail on when the Fed would next move. Vice Chair Stanley Fischer suggested on CNBC that a rate hike as soon as next month was possible.

The advance in the U.S. stock markets was led by financials, which stand to gain the most in an environment of higher interest rates. The S&P 500 financial index <.SPSY> ended 1 percent higher; Wells Fargo (NYSE: WFC) gained 2.2 percent and JPMorgan (NYSE: JPM) rose more than 1 percent. The advances helped Wall Street snap a three-day losing streak.

A report from the U.S. Commerce Department showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose for a fourth month in July. That reinforced bets of a rate rise soon, even as other data showed U.S. inflation remained subdued.

The dollar pared gains against the yen after extending Friday's rise and reaching a roughly three-week high of 102.39 yen in early trading.

European shares responded unfavorably to the rising expectations for a 2016 Fed rate hike, with the pan-European STOXX 600 index <.STOXX> ending down 0.15 percent. British markets were closed for a holiday.

"The market's getting more comfortable with the idea that the Fed is going to raise rates this year," said Chris Zacarelli, chief investment officer at Cornerstone Financial Partners.

MSCI's all-country world equity index <.MIWD00000PUS> was last down 0.04 points, or just 0.01 percent, at 418.38.

The Dow Jones industrial average <.DJI> ended up 107.59 points, or 0.58 percent, at 18,502.99. The S&P 500 <.SPX> closed up 11.34 points, or 0.52 percent, at 2,180.38. The Nasdaq Composite <.IXIC> ended up 13.41 points, or 0.26 percent, at 5,232.33.

Europe's broad FTSEurofirst 300 index <.FTEU3> closed down 0.17 percent, at 1,350.4.

U.S. Treasury yields maturing between 2-10 years dipped on foreign demand after touching their highest levels since June on Friday. U.S. 30-year Treasury bond yields also fell, with their prices rising more than a full point. Benchmark 10-year yields were last at 1.565 percent, compared to 1.633 percent late Friday.

"Even though it looks like the Fed may tighten in September and will probably tighten by December, people are still looking at Treasuries saying, 'I like those yields,'" said Evercore ISI strategist Stan Shipley.

Oil prices settled down more than 1 percent, ending two consecutive days of gains, pressured by high output from Middle East OPEC members and as a firmer U.S. dollar weighed on commodities.

Brent crude settled down 66 cents, or 1.32 percent, at $49.26 a barrel. U.S. crude settled down 66 cents, or 1.39 percent, at $46.98 per barrel.

Safe-haven spot gold rebounded from a near five-week low of $1,314.70 after the dollar pared its gains. U.S. gold futures for December delivery settled up 0.09 percent at $1,327.10.

(Additional reporting by Anirban Nag and Alex Lawler in London, Dion Rabouin and Karen Brettell New York and Yashaswini Swamynathan in Bengaluru; Editing by Nick Zieminski and Bernadette Baum)



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