Stocks diverge as US rally loses steam

Stock markets diverged Wednesday as a rally fuelled by upbeat US economic data ran out of steam, but the dollar got a boost on rate hike comments.

Tokyo closed up two per cent and European indices also pushed higher, one day after a closely watched gauge of US consumer confidence hit its highest level since January last year.

Other data showed new home sales surged in May and orders for big-ticket manufactured items rose again.

The data tempered fears that the world's top economy could tip into recession because of more than a year of interest rate hikes by the US Federal Reserve as it battles inflation.

But Wall Street opened lower on Wednesday after rallying the previous day.

Reports that Washington could block the export of artificial intelligence chips to China weighed on sentiment.

Shares in Nvidia, whose chips are particularly prized for use in computers working on artificial intelligence, fell by 2.9 per cent. Shares in Intel shed 1.7 per cent.

Both trimmed their losses and the tech-heavy Nasdaq pushed into positive territory in morning trading.

The S&P wobbled around while the Dow was still in the red as European markets closed.

Rate hike comments by US Federal Reserve chief Jerome Powell, dampened sentiment for equities, but boosted the greenback.

Speaking at an annual conclave of central bankers in Portugal, Powell said that the Fed is leaving open the possibility of consecutive interest rate hikes in the months ahead, to cool the economy further and bring down inflation.

Powell said that US monetary policy will likely take more time to act against high inflation, and bring it down to the Fed's long-term target of two per cent.

"Policy hasn't been restrictive enough for long enough," he added.

That dashed hopes that the Fed would be able to quickly begin cutting rates.

"The US dollar is the best performer, after Fed chairman Jay Powell said that more rate hikes were coming, including the possibility of rate rises at consecutive meetings if the data supported such an action," said analyst Michael Hewson at CMC Markets.

Italian Prime Minister Giorgia Meloni on Wednesday criticised the European Central Bank over its hiking of rates, warning "the cure risks proving more damaging than the disease".

Meloni was reacting to ECB President Christine Lagarde's warning Tuesday that the bank would "continue to increase rates in July" unless there was "a material change to the outlook".

The ECB has lifted borrowing costs at the fastest pace ever over the past year in a bid to cool inflation after Russia's war in Ukraine sent energy and food prices surging.

While sky-high energy prices that drove inflation up last year have come down, ECB officials are now concerned about the impact of rising wages as workers demand higher salaries to cover rising costs.

Oil prices bounced around, then jumped after data showed a massive draw of 9.6 million barrels last week from US stockpiles.

Nevertheless, prices remained not far off multi-month lows, which have been tested several times in recent weeks.

This "suggests we are potentially in a prolonged period of consolidation, with little sign yet of further downside momentum building," he said.

Opec and its allies have cut back oil production to support prices but recession worries have kept gains in check.

• Business