By Stephen Culp
NEW YORK (Reuters) - U.S. stocks advanced in a broad rally on Tuesday, and the dollar softened as robust economic data eased recession fears and stoked investors' risk appetite.
All three major U.S. stock indexes closed well into positive territory, with tech-related megacaps - particularly those involved in a nascent AI frenzy - boosting the Nasdaq 1.8%, its largest one-day percentage jump in a month.
An unexpected jump in new orders for U.S.-made durable goods, along with robust readings on new home sales and consumer confidence, helped soothe worries over a looming recession amid the Federal Reserve's efforts to toss cold water on demand in order to rein in inflation.
"The economic data today was particularly strong," said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta. "With that as a backdrop, there’s has been a fear of missing out on the rally and a change in tenor for the outlook for the market."
"What little correction there was might have made people feel better about being in the market today," Martin added.
The solid data would appear to pave the way for another 25 basis point interest rate hike at the end of the Federal Reserve's July meeting.
"Pretty much no matter what happens between now and then (the Fed is) going to hike 25 basis points, because if they don’t the market is really going to think the Fed’s done and the Fed doesn’t want that," Martin said.
Financial markets are pricing in a 77% likelihood of that occurring, according to CME's FedWatch tool. The question remains whether the Fed will call it a day or tighten further in September and beyond.
The Fed Chairman Jerome Powell's European counterpart, European Central Bank President Christine Lagarde said on Tuesday said the ECB is unable to announce an end to rate hikes in the face of stubbornly high inflation.
The Dow Jones Industrial Average rose 212.03 points, or 0.63%, to 33,926.74, the S&P 500 gained 49.59 points, or 1.15%, to 4,378.41 and the Nasdaq Composite added 219.90 points, or 1.65%, to 13,555.67.
European stocks reversed earlier losses to close with a nominal gain, supported by luxury goods and financials as investors bet on further policy stimulus from China, while hawkish comments from Lagarde held gains in check.
The pan-European STOXX 600 index rose 0.05% and MSCI's gauge of stocks across the globe gained 0.89%.
Emerging market stocks rose 0.60%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.81% higher, while Japan's Nikkei lost 0.49%.
The greenback softened against a basket of world currencies as data pointed to U.S. economic strength, while the euro gained in the wake of Lagarde's comments.
{{2126|The dodollar index fell 0.21%, with the euro up 0.52% to $1.0961.
The Japanese yen weakened 0.34% versus the greenback at 144.03 per dollar, while sterling was last trading at $1.275, up 0.30% on the day.
U.S. Treasury yields rose as stronger-than-expected economic data calmed recession jitters.
Benchmark 10-year notes last fell 11/32 in price to yield 3.762%, from 3.719% late on Monday.
The 30-year bond last fell 10/32 in price to yield 3.8368%, from 3.819% late on Monday.
Crude prices slid after U.S. economic indicators surprised to the upside, ahead of energy demand data expected later in the session.
U.S. crude fell 2.41% to settle at $67.70 per barrel, while Brent settled at $72.26 per barrel, up 2.59% on the day.
Gold prices softened as upbeat economic reports dulled the safe-haven metal's luster.
Spot gold dropped 0.5% to $1,912.89 an ounce.