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NEW YORK (Reuters) – The three major Wall Street indexes rallied on Tuesday to record their biggest gain in a day since five months after Fed Chairman Jerome Powell left the door open for a possible cut rates.
Powell said the central bank would act "as appropriate" to face the risks of a trade war a day after St. Louis Fed chief James Bullard said that a rate cut could be justified soon. Powell said the Fed "was watching closely the implications" of a trade dispute that has disrupted global markets.
The last time the S & P benchmark index posted a larger daily percentage gain, it was Jan. 4, when Powell became more accommodating after a late sale in 2018, with the promise that the Fed would be patient and flexible in its evolution of interest rates.
Investors were hoping the Fed would lower rates at least once by the end of 2019, according to Fedwatch of the CME group, and Tuesday's comments helped support those bets.
"Given the fact that there is over 95% probability of a rate cut in fixed income, it's nice to hear the Fed say it will wait for the economy to tell them what to do. If the economy slows down because of tariffs, the Fed would consider lowering rates, "said JJ Kinahan, senior market strategist at TD Ameritrade in Chicago.
The Dow Jones Industrial Average rose 512.4 points, or 2.06%, to 25,332.18, the S & P 500, 58.82 points, or 2.14%, to 2,803.27 and the Nasdaq Composite added 194.10 points, or 2.65%, to 7,527.12.
The S & P 500 lost more than 6% in May as investors fear a slowdown in global growth and rising trade tensions between the US and China, as well as the United States and Mexico.
"When the market is down, all you need is a spark," said Paul Nolte, Portfolio Manager at Kingsview Asset Management in Chicago.
Nolte said investors were also encouraged after Mexican President Andres Manuel Lopez Obrador said he was optimistic about the possibility of reaching an agreement even as US President Donald Trump announced that he was considering imposing new tariffs on all Mexican products.
A Washington Post article reporting that Republican lawmakers were debating whether to vote to block President Trump's new tariffs on Mexico had also helped to boost sentiment.
Earlier in the day, the Chinese Ministry of Commerce said that disputes and friction with Washington should be resolved through dialogue.
But Kinahan of Ameritrade advised taking trade stories "with a grain of salt, as that could change tomorrow".
"We will continue to see the rates make us come and go. Especially now that we're done with profits, it's the main game in town, "he said.
Nasdaq's technology-driven rebound came after confirming a correction on Monday after losing more than 10% since the record May 3 closing.
The technology sector was the main driver of the S & P index, with growth of 3.3%, thanks to gains recorded by Apple Inc. and Microsoft.
The rise in US Treasury yields boosted the S & P 500 banking index, up 3.65%.
Only the real estate sector paying dividends ended the day in the red with a drop of 0.6%, investors having invested their money in riskier bets.
But utilities, generally considered one of the most defensive bets, edged up with a gain of 0.04%.
Increasing issues outnumbered declining issues at the NYSE with a ratio of 4.07 to 1; on the Nasdaq, a ratio of 3.18 to 1 favored the advanced.
The S & P 500 recorded 25 new highs over 52 weeks and 1 new low; the Nasdaq composite recorded 44 new highs and 74 new lows.
In the United States, 7.53 billion shares have changed hands, compared to 7.16 billion shares in the last 20 sessions.
Caroline Valetkevitch in New York, Medha Singh, Daniel Amy Caren and Shreyashi Sanyal; Edited by Anil D & Silva and Dan Grebler
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