By Anna Isaac and Karen Langley
The Dow Jones Industrial Average rallied in the final hour Tuesday to recover early losses as oil prices slumped, reversing some of their historic jump the day earlier.
The blue-chip index rose 33 points, or 0.1%, a day after breaking an eight-session winning streak. The S&P 500 edged higher about 0.3% as a decline in energy stocks nearly offset a rally in safety sectors like real estate and utilities. The technology-heavy Nasdaq Composite added 0.4%.
Earlier, Brent crude, the global oil benchmark, dropped 4.8% to $65.69 a barrel after Reuters reported that Saudi output could return more quickly than initially expected. Prices on Monday had notched their biggest percentage gain on record after a weekend attack on Saudi oil facilities left investors struggling to calculate the likely impact on global supplies.
"What we are going to watch going forward is to see how these higher oil prices affect the consumer, especially here in the United States, as the U.S. consumer is driving the growth in the economy right now," said Carter Henderson, portfolio specialist at Fort Pitt Capital Group.
In addition to monitoring information about oil supply, investors are looking ahead to the Federal Reserve's policy meeting this week. Markets are expecting another quarter percentage point interest rate cut Wednesday, but there will also be scrutiny of how recent developments with Saudi Arabia and trade talks with China might influence future policy.
The U.S. 10-year Treasury yield slipped to 1.798%,from 1.843% Monday. Bond yields fall as prices rise.
Investors were also monitoring signs of turmoil in the repo market. The Federal Reserve Bank of New York stepped in Tuesday for the first time in more than a decade to relieve pressures that were pushing short-term interest rates higher than the central bank wanted. The Fed moved to put $53 billion of funds back into the banking system through transactions known as repurchase agreements.
Wednesday's policy decision is unrelated to the recent funding-market strains.
"The expansion's been a story of slow and steady growth," said Craig Birk, chief investment officer at Personal Capital. "There's nothing to us that suggests that has to end anytime soon. The consumer's still doing fine, unemployment's still very low, manufacturing is a bit soft but not terrible. There's no reason the slow and steady expansion can't continue, especially, it appears, with continued support from the Fed."
New data Tuesday showed U.S. industrial production rebounded sharply in August, a sign that is likely to ease worries about a manufacturing-driven economic downturn.
In China, the Shanghai Composite dropped 1.7% and Hong Kong's Hang Seng fell 1.2% as the People's Bank of China remained restrained in its response to a recent spate of weak economic data. The central bank on Tuesday disappointed economists who had hoped it would move to effectively lower interest rates, though it took steps to inject 200 billion yuan ($28.3 billion) into the banking system.
"Because there was an injection of cash people were looking at the PBOC closely. There was some surprise that there wasn't a cut now. In recent history, they tend to keep pace with the Fed, but they could still do that in the coming days," said Freya Beamish, chief Asia economist at Pantheon Macroeconomics.
China's central bank officials will be more focused on trade talks with the U.S. in October than on a cut in rates, Ms. Beamish said.
Despite the gloom, Japan's Nikkei edged up 0.1% as President Trump moved ahead with a trade pact with the country on areas such as digital technology and agriculture. The step should see some tariffs on Japanese imports to the U.S. lowered.
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