Soft ISM data sends dollar lower; stocks advance

Tue Sep 6, 2016 4:21pm EDT
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By Chuck Mikolajczak

NEW YORK (Reuters) - The dollar slumped on Tuesday after data on the U.S. services sector fell well short of expectations, while a gauge of global equity markets held near a one-year high.

The Institute for Supply Management said its index of non-manufacturing activity fell to 51.4, its lowest level since February 2010, from 55.5 the month before and well shy of the 55 estimate. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.

Stocks on Wall Street .SPX briefly turned negative in the wake of the data and MSCI's index .MWD00000PUS of world shares pared gains before rebounding to last trade at 424.16, its highest level since Aug 10, 2015.

The dollar .DXY softened considerably, down 1 percent against a basket of major currencies, with the greenback on track for its biggest drop since late July.

The services sector report diminished expectations for a rate hike by the U.S. Federal Reserve in September, with the odds of a rate hike this month now at 18 percent, versus 21 percent on in the prior session, according to CME's FedWatch tool. Expectations for December have also decreased to just above 50 percent.

Comments from several Fed officials in recent weeks had increased the probability for a rate hike this year, but expectations have declined since Friday's weaker-than-anticipated U.S. payrolls report.

The Fed is "not getting support from data for a rate increase, and so we're seeing the market creep a little higher today," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The Dow Jones industrial average .DJI rose 46.37 points, or 0.25 percent, to 18,538.33, the S&P 500 .SPX gained 6.5 points, or 0.3 percent, to 2,186.48 and the Nasdaq Composite .IXIC added 26.01 points, or 0.5 percent, to 5,275.91.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 31, 2016.  REUTERS/Brendan McDermid