While you were sleeping: UPDATED Stocks gain as US dollar loses lustre

Stocks on Wall Street rose as investors retreated from bets against some of the year’s most beaten-down sectors such as banking and materials..

Still, investors remained cautious ahead of Friday’s jobs report, which some fear could reveal weakness in what has been a bright spot of the US economy.

Oil prices fell and the US dollar weakened as investors increasingly bet the Federal Reserve may hold off on raising interest rates.

"One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting," William Dudley, president of the Federal Reserve Bank of New York, told Market News International in an interview.

"So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision," Mr Dudley said.

The weaker US dollar offered a boost to commodities, priced in the currency, such as oil, gold and copper. US-traded crude fell 1.7% to $US31.72 a barrel.

"The Fed may well have missed the business cycle entirely ... The financial cycle seems to have turned as well," former Fed governor Kevin Warsh said of the central bank's decision to begin raising rates in December, Reuters reported. "The economy has chronically underperformed what was predicted."

Bond yields to rise – Goldman
Others disagreed. Goldman Sachs Group predicts US Treasurys are set to decline as the current yields do not accurately reflect Fed rate increases. The benchmark 10-year yield will rise to about 3% by year-end, according to Jan Hatzius, chief economist for Goldman Sachs.

"Ten-year yields are likely to go up," Hatzius said at a conference in Sydney, Bloomberg reported. The "bond market is underestimating to a significant degree the amount of monetary normalisation that we're likely to see."

The latest jobs data were disappointing. A Labor Department showed that initial claims for state unemployment benefits climbed 8,000 to a seasonally adjusted 285,000 for the week ended January 30. Some were unperturbed by the report.

"To date, even taking the recent rise as given, the increase [in claims] is not sufficient to change our view that the expansion remains intact and that the economy is far from recession," Rob Martin, an economist at Barclays in New York, told Reuters.

Friday's Labor Department payrolls report is expected to show US employers added 190,000 workers in January while the unemployment rate remained at 5%.

Separately, a Commerce Department showed new orders for manufactured goods slid 2.9% in December, the biggest decline in a year, following a 0.7% fall in November.

The European Commission, meanwhile, lowered its 2016 growth and inflation estimates for the euro-zone.

The Bank of England also downgraded its inflation estimates, while holding its key rate steady. The UK's FTSE 100 Index rose 1.1% as mining shares leapt. Anglo American rallied 20% with Glencore up more than 15% and shares of BHP Billiton and Rio Tinto advancing more than 10%.

"As one of the most open economies in the world, the UK cannot help but be affected by an unforgiving global environment and sustained financial-market turbulence," Bank of England Governor Mark Carney said at a press conference in London, according to Bloomberg. "We will do the right thing at the right time on rates."

In Europe, the Stoxx 600 Index ended the session with a 0.2% decline from the previous close, amid corporate earnings misses including from Credit Suisse. Germany's DAX Index fell 0.4%. France's CAC 40 Index eked out a 0.04% gain.

UPDATED with Wall Street close (10am NZ time)(BusinessDesk)