Wall Street dips after rate cut rally, dollar firms

By Isla Binnie and Sruthi Shankar

NEW YORK (Reuters) -Wall Street closed flat on Friday, hovering near the previous session's record-high close for the Dow and S&P 500, while the dollar firmed as investors digested the Federal Reserve's 50-basis-point cut midweek that started a rate reducing cycle.

Days after the rate cut, two Fed governors aired opposing views over prospects for inflation, underlining the scale of debate over a move Chair Jerome Powell positioned as safeguarding a resilient economy rather than an emergency response to weaker jobs data.

All three major U.S. stock indexes ended the week higher, not far off all-time peaks hit on Thursday as buyers piled in to riskier assets.

Markets are fully pricing in a cut of at least 25 bps in November, with expectations for a cut of 50 bps given a 48.9% chance, according to CME's FedWatch Tool.

The 50 bps rate cut has made investors think about "risks below the surface they do not know about" and want to position for "risks of the unknown", said Michael Matousek, head trader at U.S. Global Investors.

"The other question is if the soft landing is going to work, so that might be wearing on investors a little bit, raising some concerns," he added, referring to the ideal economic scenario where inflation cools without triggering a recession.

The Dow Jones Industrial Average closed up 0.09%, to 42,063.36, the S&P 500 ended down 0.19%, to 5,702.55 and the Nasdaq Composite rounded out the week 0.36% lower, at 17,948.32.

The Dow's gains were powered by Nike, whose shares climbed after saying former senior executive Elliott Hill will rejoin the company to succeed John Donahoe as CEO.

The MSCI index of world stocks drooped 0.21%, to 837.69 after jumping on Thursday to a record high.

Utilities outperformed, with the boosted by Constellation Energy whose stock soared more than 20% on news of a deal with Microsoft to reopen part of a mothballed nuclear plant to power artificial intelligence projects.

U.S. OUTLOOK ECHOES ABROAD

Rounding off a busy week for monetary policy, the Bank of Japan left rates unchanged. Markets had been expecting rates to remain steady, but Governor Kazuo Ueda tempered expectations around imminent rate hikes.

The U.S. economic outlook also rippled into the Bank of Japan's meeting. Ueda said uncertainty around the world's largest economy and market volatility could impact its policy moves.

The yen eased after the meeting and was last seen 0.94% weaker against the greenback to 143.97 per dollar. [FRX/] The dollar climbed to a two-week high against the yen after Ueda's remarks.

The dollar gained ground after suffering losses earlier in the week. The index, which measures the greenback against a basket of currencies, was up 0.12% to 100.79.

European stocks had fallen earlier from two-week highs, with automakers leading the slide after Mercedes-Benz cut a profit margin target, citing weakness in China. [.EU]

In China, the central bank kept its benchmark lending rates on hold, countering expectations for a move lower. Chinese blue chips edged up 0.2% but remained close to a seven-month low touched earlier in the week.

Downbeat data in recent days has raised hopes of aggressive stimulus to prop up the world's second largest economy.

Sterling initially weakened after the Bank of England held rates steady on Thursday before turning around and strengthening 0.23% to $1.3314. Data on Friday showed British retail sales rose by a more than expected in August.

Commodities also held on to their weekly gains. Gold touched a record high at $2,614 an ounce.

Two major oil benchmarks ended lower on the day, but more than 4% higher on the week.

Brent futures settled down 0.52%, at $74.49 a barrel. U.S. WTI crude futures settled down 0.4%, to $71.92.[O/R]

(Reporting by Stella Qiu and Sruthi Shankar; Editing by Sam Holmes, Gareth Jones, Alex Richards, David Evans and David Gregorio)