NEW YORK, Jan 18 (Reuters) - U.S. stocks gained ground on Thursday as investors wrestled over whether to embrace robust U.S. labor market data as a sign of economic strength that also weakens the likelihood that the Federal Reserve could lower its key policy rate as early as March.
The Fed's counterpart, the European Central Bank (ECB) warned in minutes from its most recent meeting that it was far too soon to discuss policy easing.
All three major U.S. stock indexes were higher, with a solid rally in tech-related shares favoring the Nasdaq.
A report from the U.S. Labor Department showed initial claims for unemployment benefits slid to their lowest level since Sept. 2022, casting further doubt as to whether the U.S. central bank will cut its Fed funds target rate at the conclusion of its March policy meeting.
"The Fed is all about data and the data has been showing that the economy continues to be strong," Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. "Not overwhelmingly strong, but likely strong enough to avoid a recession despite elevated interest rates."
The solid data, in addition to jitters surrounding the potential of conflict escalation in the Middle East, helped keep upward pressure on Treasury yields.
Financial markets are pricing in a 55.7% likelihood that the Fed will cut rates at its March meeting, down from 70.2% a week ago, according to CME's FedWatch tool.
"(The market's) rate cut expectations have been pretty aggressive," Ghriskey added. "A rate cut in March seems very premature, especially given the strength of the economy."
The Dow Jones Industrial Average rose 121.2 points, or 0.33%, to 37,387.87, the S&P 500 gained 30.36 points, or 0.64%, to 4,769.57 and the Nasdaq Composite added 171.10 points, or 1.15%, to 15,026.72.
European shares closed higher, boosted by upbeat earnings and the release of minutes from the ECB's meeting last month, which showed policymakers were confident inflation was falling back down to target.
The pan-European STOXX 600 index rose 0.59% and MSCI's gauge of stocks across the globe gained 0.54%.
Emerging market stocks rose 0.36%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.37% higher, while Japan's Nikkei lost 0.03%.
U.S. Treasury yields got a boost from the robust jobless claims data, suggesting the Fed could hold off on lowering rates for longer than previously anticipated.
Benchmark 10-year notes last fell 10/32 in price to yield 4.142%, from 4.104% late on Wednesday.
The 30-year bond last fell 34/32 in price to yield 4.3725%, from 4.312% late on Wednesday.
The dollar advanced against a basket of world currencies for a fifth consecutive session as optimism over a March rate cut faded.
The dollar index rose 0.02%, with the euro down 0.19% to $1.086.
The Japanese yen weakened 0.01% versus the greenback at 148.21 per dollar, while Sterling was last trading at $1.269, up 0.14% on the day.
Crude prices climbed after the International Energy Agency (IEA) echoed OPEC in forecasting strong global oil demand this year as geopolitical risks in the Middle East kept supply concerns on the front burner.
U.S. crude rose 2.09% to settle at $74.08 per barrel, while Brent settled at $79.10 per barrel, up 1.57% on the day.
Gold prices rose as mounting geopolitical concerns, particularly turmoil in the Middle East, enhanced the safe-haven metal's appeal.
Spot gold added 0.7% to $2,019.89 an ounce.
(Reporting by Stephen Culp; editing by Barbara Lewis and Marguerita Choy)
