Amid all the hand-wringing over the debt ceiling row and background banking anxiety, the U.S. economy is holding up well enough to embolden Federal Reserve hawks once again.

Assumptions about first-quarter and full-year S&P500 aggregate earnings contractions are being revised away alongside euro zone and British recession forecasts, AI and chip-led investment is picking up steam and 'soft landing' hopes for the economy have been rekindled.

In some of the most timely updates on activity, early May business surveys from Europe and Japan continue to show brisk services-led growth through this month and the U.S. equivalent is due later on Tuesday.

Although concentrated heavily in the tech sector, stock market indices are pushing higher even in the face of Washington's bruising standoff over the debt limit - which seemed to take a more optimistic tone on Monday.

But shallower downturns, or even none at all, just goad more inflation-wary central bank officials to argue for even tighter monetary policy to ensure inflation eventually returns to target.

And even though there appears to be some appetite among Fed officials for a pause in the rate hike cycle next month at the current 5.0-5.25% range, the drumbeat for further hikes after that resumed in some quarters.

St. Louis Fed President James Bullard talked again of favouring 50 basis points more of rate rises before peaking, while Minneapolis Fed chief Neel Kashkari said entrenched services inflation means "it may be that we have to go north of 6%".

That talk of 6%-plus rates has not been heard since before the banking jolt in early March.

To be sure, that's far from Fed consensus and the likes of Chair Jerome Powell and San Francisco Fed chief Mary Daly have been more equivocal on the outlook in recent days.

But the net effect has been to see markets scale back expectations for Fed rate cuts later this year, even if futures still seem resolute that the peak in rates is in already.

Since early Monday alone, money markets have moved from pricing half a point of rate cuts this year to just 34bp on Tuesday. Economists are even more hawkish and now believe the Fed will not lower its targeted policy rate until the first quarter of next year, according to the survey released by the National Association for Business Economics.

That lifting of the yearend rate horizon is reigniting the dollar - especially against China's yuan, which is hovering close to its lowest levels of the year on doubts about the strength of China's much-touted post-COVID recovery.

Coupled with anxious geopolitics following the weekend G7 summit's call for 'de-risking' of businesses' reliance on China supply chains, Shanghai stocks recorded their biggest one-day fall in a month.

Elsewhere, shares of Julius Baer slumped almost 8% after the Swiss bank reported only a modest rise in assets under management and money inflows, disappointing investors who had expected it to benefit from Credit Suisse's troubles.

Zoom Video Communications extended Monday's rally in after-hours trade after it raised its full-year forecasts for revenue and profit even as growth winds down from a pandemic boom and business spending slows in a tough economy.

Events to watch for later on Tuesday:

* Flash May business surveys from the United States, Europe and around the world. U.S. April new home sales. Richmond Fed's May business index, Philadelphia Fed's May service sector survey

* U.S. Treasury auctions 2-year notes

* Dallas Federal Reserve President Lorrie Logan speaks. Bank of England Governor Andrew Bailey speaks in parliament

* U.S. corporate earnings: Palo Alto Networks, Agilent Technologies, Intuit, Autozone, VF Corp

(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)