US stocks fluctuate as investors weigh economy, Fed rate bets

NEW YORK (BLOOMBERG) - US stocks fluctuated near a three-month high as the spectre of an interest rate increase this year left investors looking to Friday's jobs report for fresh signs the economy is strong enough to withstand tightening.

The Standard & Poor's 500 Index was little changed at 2,101.91 at 9:32am in New York, after the gauge fell on Thursday for the first time in three sessions, slipping 0.4 per cent.

"If good news about the economy is good news, then the market could react OK," said Christian Zogg, head of equity and fixed income at LLB Asset Management in Vaduz, Liechtenstein. "Otherwise, it's the ordinary game in town: higher interest is bad for business. Both ways, there will be some kind of volatility."

A report on Thursday showed the number of Americans filing for unemployment benefits rose more than economists forecast to a five-week high, representing a pause in the recent progress that left claims at their lowest level since 1973. Friday's report on payrolls and unemployment will garner even more scrutiny as it feeds into the Federal Reserve's assessment of the economy's strength.

Better-than-expected services industry data and comments yesterday from Fed Chair Janet Yellen that the economy is performing well enough to possibly raise rates in December put the brakes on a rally that had carried the S&P 500 to within 1 per cent of its record.

Fed Bank of New York President William Dudley backed Yellen's stance, while Fed Vice Chairman Stanley Fischer expressed confidence that inflation isn't too far below the central bank's goal.

Traders now price in a 56 per cent chance the central bank will increase rates at next month's meeting, up from 50 per cent earlier this week.

Equity futures briefly extended gains earlier after the Bank of England indicated it remains cautious on the prospect of increasing rates as the global environment and feeble inflation cloud its outlook. Also, the European Commission cut its euro- area growth and inflation outlook for next year, citing more challenging global conditions. European Central Bank President Mario Draghi has said the central bank will examine its policy stance in December.

More than 20 members of the S&P 500 are scheduled to release results today, including Walt Disney Co. and Kraft Heinz Co. With more than 80 per cent of the index's companies having reported, about 73 per cent have beaten earnings estimates, while only 45 per cent have topped sales forecasts. Analysts estimate profits dropped 3.9 per cent in the third quarter, up from predictions for a 6.1 per cent decline a week ago.