Wall Street rallies as Powell hints at slowing rate hikes

By Stephen Culp

NEW YORK (Reuters) - Wall Street extended its gains on Wednesday after Federal Reserve Chair Jerome Powell said that the central bank's policy rate was "just below" neutral, hinting at a potential moderation in the pace of policy tightening.

The S&P 500 was up 1.9 percent, while the Dow and the Nasdaq each advanced more than 2 percent following Powell's speech to the Economic Club of New York.

In his remarks, Powell said that while "there was a great deal to like" about U.S. prospects, "our gradual pace of raising interest rates has been an exercise in balancing risks."

Earlier in the day, in its first-ever financial stability report, the Fed cautioned that trade tensions, Brexit, and troubled emerging markets could rock a U.S. financial system where asset prices are "elevated."

This comes on the heels of President Donald Trump's latest attack on the central bank, saying in an interview on Tuesday that the Fed "is way off-base with what they're doing."

"(Powell) gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive," said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.

"Powell saying we're 'close to neutral' is a pretty good indication of what's to come," Pursche added.

The U.S. Commerce Department affirmed that U.S. GDP grew in the third quarter at a 3.5-percent annual rate, but the goods trade deficit widened, consumer spending was revised lower and sales of new homes tumbled, suggesting clouds are gathering over what is now the second-longest economic expansion on record.

The Dow Jones Industrial Average <.DJI> rose 539.18 points, or 2.18 percent, to 25,287.91, the S&P 500 <.SPX> gained 49.69 points, or 1.85 percent, to 2,731.86 and the Nasdaq Composite <.IXIC> added 165.49 points, or 2.34 percent, to 7,248.19.

Of the 11 major sectors in the S&P 500, all but utilities <.SPLRCU> were positive. Technology <.SPLRCT>, consumer discretionary <.SPLRCD> healthcare <.SPXHC> and industrials <.SPLRCI> were the biggest percentage gainers, each up more than 2 percent.

The S&P 500 Automobile & Components index <.SPLRCAU> was up 0.9 percent after President Trump said he was studying new auto tariffs in the wake of General Motors Co's announcement that it would close plants and cut its workforce.

Meanwhile, GM stock has given up its gains since announcing its restructuring.

Health insurer Humana Inc cut its 2019 forecast for Medicare drug plan enrollment, but upped its estimated enrollment in the company's Medicare Advantage plan. Its stock was up 5.9 percent.

Salesforce.com Inc beat analysts' earnings estimates and forecast better-than-expected 2020 revenue, sending its shares up 8.4 percent. Other cloud software makers rose on the news, with the ISE Cloud Index <.CPQ> gaining 2.9 percent.

Microsoft Corp surpassed Apple Inc in market cap, its shares rising 3.2 percent, as the Windows software maker benefited from optimism about demand for cloud computing services.

Among losers, Tiffany & Co shares dropped 11.3 percent after the luxury retailer missed quarterly sales estimates on slowing Chinese demand.

Advancing issues outnumbered declining ones on the NYSE by a 3.96-to-1 ratio; on Nasdaq, a 3.57-to-1 ratio favoured advancers.

The S&P 500 posted 15 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 29 new highs and 113 new lows.

(Reporting by Stephen Culp; additional reporting by Noel Randewich; Editing by Nick Zieminski)

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