While you were sleeping: Wall St rises, US manufacturing shrinks

Wall Street rose the most in two weeks after a report showing a surprise contraction in US manufacturing bolstered hopes the Federal Reserve will keep the pace of interest rate increases slow.

The Institute for Supply Management said its manufacturing index unexpectedly slid, falling to 48.6 in November, the lowest level in nine years and down from 50.1 in October.

"It's the perfect storm for manufacturing," Brett Ryan, a US economist at Deutsche Bank Securities in New York, told Bloomberg.

"Traditionally, the manufacturing sector has been the canary in the coal mine when it comes to slowing growth. To what extent this bleeds over into other sectors of the economy – that's yet to be seen."

Fed chairwoman Janet Yellen is set to speak on the economic outlook on Wednesday and will testify to US lawmakers on Thursday. The Federal Open Market Committee is widely expected to raise its target interest rate for the first time since 2006 at its next meeting this month.

However, Bob Andres, chief investment officer at Andres Capital Management in Berwyn, Pennsylvania, told Reuters that the data does not support a US rate hike.

"The Fed has talked itself into a deeper conundrum and need to raise because if it doesn't, it shows a lack of faith in the US economy," according to Mr Andres, adding that if the central bank does tighten, subsequent hikes will be very gradual.

Separately, a Commerce Department report showed said construction spending rose 1.0% to a seasonally adjusted $1.11 trillion rate, the highest level since December 2007.

US treasuries rose, pushing yields five basis points lower to 2.16%.

"The Fed is still likely to lift off in two weeks' time but, with this perception of slowing growth, the market is pricing in an even slower projection of raising rates and inflation," Tom Simons, a government-debt economist in New York at Jefferies Group, a primary dealer, told Bloomberg.

At the close of share trading, the Dow Jones Industrial Average rose 167.43 points, or 0.95%, to 17,888.35. The Standard & Poor's 500 Index gained 1.0% to 2102.63, while the Nasdaq Composite Index added 0.9% to 5156.31.

Gains in shares of Pfizer and Chevron led the Dow higher. Boeing rose 1.6% on a strong recommendation from Deutsche Bank.

Oil futures settled at $US41.74 a barrel, up 0.3%, in New York. Gold rose 0.2% to $US1067.80 an ounce.

In Europe, the Stoxx 600 Index ended the session with a 0.3% fall from the previous close. France's CAC 40 Index slid 0.9%, while Germany's DAX Index dropped 1.1%.

The UK's FTSE 100 Index rose 0.6%, bolstered by bank stocks after the Bank of England said all seven major lenders passed so-called stress tests.

"Bank executives must be breathing a sigh of relief," Simon Goldsmith, head of risk solutions at SAS UK & Ireland, told Reuters. "It is reassuring for consumers and financial authorities to recognise that the industry has tightened up how it conducts its business."

Updated for Wall Street close (10am NZ time)

(BusinessDesk)