Wall Street surges, dollar firms ahead of data, expected rate cut

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks closed sharply higher on Monday and the dollar strengthened as markets awaited key data and actions from central banks.

All three major U.S. stock indexes surged more than 1%, with the S&P 500 and the Dow ending a four-session losing streak, bouncing back from their biggest weekly percentage losses since March 2022.

The tech-laden Nasdaq staged a comeback after suffering its largest Friday-to-Friday decline since January 2022 last week.

The greenback strengthened ahead of Wednesday's much anticipated Consumer Price Index report.

"Two things are happening," said Greg Bassuk, CEO of AXS Investments in New York. "Investors are putting cash back to work after last week's over-selling, and secondly, everyone is bullish on a Fed rate cut."

"There's a lot of dip-buying and Fed optimism today," Bassuk added.

Last week mixed data, particularly the August employment report, caused investors to dial back expectations that the U.S. Federal Reserve could issue an outsized 50 basis point rate cut when it convenes for its policy meeting next week.

On Wednesday, the Labor Department's Consumer Price Index is expected to show underlying inflation remains on its meandering path back down toward the central bank's 2% goal.

At last glance, financial markets have baked in a 71% likelihood that the Fed will lower its key policy rate by 25 basis points at the end of next week's meeting, with a 29% probability of a 50 basis point reduction, according to CME's FedWatch tool.

The Dow Jones Industrial Average rose 484.28 points, or 1.2%, to 40,829.69, the S&P 500 gained 62.65 points, or 1.16%, at 5,471.07 and the Nasdaq Composite added 193.77 points, or 1.16%, at 16,884.60.

European stocks staged a comeback with the benchmark STOXX 600 recovering from last week's steep declines as investors awaited an expected interest rate cut from the European Central Bank later in the week.

"Last week there was a lot of weak economic data in the U.S. and globally, and it had investors skittish over recessionary fears," Bassuk said.

"With dip-buying and greater confidence that many central banks are going to be moving from hawkish to dovish policy there's more optimism that the central banks can avoid a global recession."

The pan-European STOXX 600 index rose 0.82% and MSCI's gauge of stocks across the globe gained 0.58%.

Emerging market stocks lost 1.07%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.13% lower, while Japan's Nikkei lost 0.48%.

Here is a look at world stock indexes as of Friday's close:

U.S. Treasury yields waffled in choppy trading amid uncertainty over the size of the Fed's expected rate cut this month.

Benchmark 10-year notes last rose 1/32 in price to yield 3.7061%, from 3.71% late on Friday.

The 30-year bond last rose 8/32 in price to yield 4.0066%, from 4.02% late on Friday.

The dollar regained strength against a basket of world currencies as investors looked ahead to key inflation data and pared expectations regarding the size of next week's policy rate cut.

The dollar index rose 0.41%, with the euro down 0.42% to $1.1037.

The Japanese yen weakened 0.48% versus the greenback at 143.01 per dollar, while Sterling was last trading at $1.3072, down 0.39% on the day.

Crude rose as concerns over supply worries arising from forecasts of a hurricane hitting Louisiana this week helped oil prices rebound from last week's heavy losses.

U.S. crude rose 1.54% to settle at $68.71 per barrel, while Brent settled at $71.84 per barrel, up 1.10% on the day.

Gold prices pared gains but held their ground as investors awaited key inflation data.

Spot gold added 0.4% to $2,505.75 an ounce.

(Reporting by Stephen Culp; Additional reporting by Nell Mackenzie and Wayne Cole in London; Editing by Andrew Heavens, Nick Zieminski and Richard Chang)