Wall Street strengthened, edging closer to fresh record highs, as a report on US consumer spending underpinned Federal Reserve officials' comments that an interest rate hike might be warranted soon.
A Commerce Department report showed that consumer spending, a key driver of the US economy, increased 0.3 per cent in July, following a 0.5 per cent gain in June.
"There are good indicators that incomes are improving and consumption is going to continue to stay strong, which points to a resilient US economy," Brian Jacobsen, chief portfolio strategist with Wells Fargo Funds Management, told Bloomberg.
"The big question is whether inflation is going to break higher or continue like this-it puts more emphasis on Friday's employment report. It's still a pretty murky picture right now."
Separate Reuters and Bloomberg polls of economists predict that Friday's government report will show that US employers added 180,000 jobs in August, following gains of 255,000 and 292,000 in July and June respectively.
The next two-day Federal Open Market Committee meeting begins on September 20.
"They're likely to tighten in September, at least as long as the jobs number comes in OK," Michael Pond, head of global inflation market strategy at Barclays Capital in New York, told Bloomberg.
"Hawkish Fed rhetoric has certainly increased recently. It'll take a decent number, like 200,000, for them to go."
Wall Street moved higher. In 3.17pm trading in New York, the Dow Jones Industrial Average rose 0.6 per cent, while the Nasdaq Composite Index gained 0.4 per cent. In 3.02pm trading, the Standard & Poor's 500 Index advanced 0.6 per cent.
Gains in shares of American Express and those of Travelers, up 1.2 per cent each respectively, led the Dow higher.
"I think the market's getting more comfortable with the idea that the Fed is going to raise rates this year," Chris Zacarrelli, chief investment officer at Cornerstone Financial Partners, told Reuters. "The Fed is walking on a tightrope, by talking about a rate hike, but not necessarily spooking the markets."
In Europe, the Stoxx 600 Index finished the day with a 0.2 per cent retreat from the previous close. France's CAC 40 index and Germany's DAX index each slid 0.4 per cent. UK markets were closed for a holiday.
The big question is whether inflation is going to break higher or continue like this-it puts more emphasis on Friday's employment report. It's still a pretty murky picture right now.
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"Declines [on Monday] have a lot to do with the aftermath of Jackson Hole and raised expectations of a rate hike this year, so that leads to a bit of adjustment in the market," Samy Chaar, a Geneva-based strategist at Lombard Odier, told Bloomberg. "If they manage to raise rates, that will be relatively good news but it does entail a little bit more tightening in the system."
Germany's BGA trade association downgraded its 2016 forecast for export growth, predicting sales abroad by Europe's biggest economy would later stagnate-possibly as early as 2017-because of the impact of Brexit, Reuters reported, citing Anton Boerner.
"The repercussions [of Brexit] will impact us massively in the near future," Boerner, head of the BGA, told Reuters in an interview.