The S&P 500 inches higher; Treasury yields dip after Powell remarks, jobs report

By Stephen Culp

NEW YORK (Reuters) - The S&P 500 posted a nominal gain and Treasury yields edged lower on Friday, as remarks from Federal Reserve chief Jerome Powell firmed interest rate cut expectations and China announced an economic stimulus package, both of which helped offset weaker-than-expected U.S. jobs data.

The roller-coaster week began with a flight to safety driven by trade jitters and weak U.S. manufacturing data, but positive geopolitical developments in Britain, Hong Kong and Italy, along with news that U.S.-China trade talks would continue, revived market risk appetite.

That appetite was further stoked after China's central bank said it would lower the amount of cash that banks must hold as reserves, in order to bolster the nation's weakening economy.

"Over the week we've seen risk assets rebound as favourable economic data and positive geopolitical developments provided comfort to investors that a broad slowdown isn't about to take shape," said Charlie Ripley, senior market strategist for Allianz Investment Management in Minneapolis.

But optimism was dampened by the U.S. non-farm payrolls report, which showed an increase of 130,000 jobs in August, fewer than analysts expected.

The underwhelming data provided another possible sign that the longest-ever period of U.S. economic expansion is losing steam and increased the likelihood that the Fed will cut rates when it meets later this month.

But Ripley believes the jobs report was not as downbeat as the headline number suggested.

"We still have an unemployment rate at 3.7% and wages are increasing at a decent clip," Ripley said.

"Beyond that we had favourable comments from Powell, which helped alleviate investor concern."

Indeed, in remarks made at a panel discussion in Zurich, Powell called the jobs report consistent with a strong labour market, adding that despite trade uncertainties he does not foresee or expect a U.S. recession.

The Dow Jones Industrial Average <.DJI> rose 69.31 points, or 0.26%, to 26,797.46, the S&P 500 <.SPX> gained 2.71 points, or 0.09%, to 2,978.71 and the Nasdaq Composite <.IXIC> dropped 13.75 points, or 0.17%, to 8,103.07.

European and emerging markets extended their gains as China's stimulus announcement outweighed the disappointing economic data from the United States and also from Germany.

The pan-European STOXX 600 index <.STOXX> rose 0.32% and MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.20%.

Emerging market stocks rose 0.51%. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 0.65% higher, while Japan's Nikkei <.N225> rose 0.54%.

U.S. Treasury yields edged lower following Powell's even-keel message, which cemented expectations that the Fed would cut interest rates later this month.

Benchmark 10-year notes <US10YT=RR> last rose 4/32 in price to yield 1.5517%, from 1.565% late on Thursday.

The 30-year bond <US30YT=RR> last rose 28/32 in price to yield 2.0169%, from 2.054% late on Thursday.

The dollar was essentially flat against a basket of major world currencies after the jobs report reinforced the likelihood of further rate cuts from the Fed.

The dollar index <.DXY> rose 0.01%, with the euro <EUR=> down 0.05% to $1.1027.

The Japanese yen strengthened 0.02% versus the greenback at 106.94 per dollar, while sterling <GBP=> was last trading at $1.2294, down 0.28% on the day.

Oil prices rose after Powell said the Fed would "act as appropriate" to sustain an economic expansion that has been hindered by global trade uncertainties.

U.S. crude oil futures settled at $56.52 per barrel, up 0.39%, while Brent crude oil futures settled up 0.97% at $61.54 per barrel.

Gold dipped nearly 1% after Powell's remarks helped jump-start risk appetite after the underwhelming jobs data.

Spot gold <XAU=> dropped 0.9% to $1,505.51 an ounce.

Copper <CMCU3> lost 0.29% to $5,828.00 a tonne.

Three-month aluminium on the London Metal Exchange <CMAL3> lost 0.06% to $1,783.00 a tonne.

(Reporting by Stephen Culp; editing by Jonathan Oatis)