Stock rally flags after strong U.S. data, bond yields rise

By Herbert Lash

NEW YORK (Reuters) - Bond yields rose and stock markets mostly edged higher on Friday after U.S. employment and manufacturing data underscored a strong economy with little wage inflation, but a gloomy outlook from Amazon.com gave investors pause.

U.S. job growth surged in January, with employers hiring the most workers in 11 months, the Labor Department said, pointing to underlying strength in the economy despite an uncertain outlook that has left the Federal Reserve wary about more interest rate hikes this year.

The employment report showed a tepid gain in hourly earnings while the ISM "prices paid" index slipped more than expected, the latest data that show a modest U.S. inflationary pace.

Prices in the U.S. futures markets indicate traders see no rate hikes ahead. Short-term futures in fact show they remain convinced the U.S. central bank's next move will be a rate cut rather than a hike.

Stocks on Wall Street pared early session gains to close near break-even while European markets closed a bit higher.

MSCI's gauge of stocks across the globe rose 0.02 percent and emerging market stocks fell 0.03 percent.

Earlier in Europe, the pan-European STOXX 600 index closed up 0.21 percent.

Amazon.com posted record sales and profit during the holiday season, but its shares fell 5.38 percent after its quarterly sales forecast fell short of Wall Street estimates.

The e-commerce giant was easily the biggest drag on the Nasdaq and S&P 500, while consumer discretionary stocks fell 1.77 percent, the biggest losing sector on the benchmark index.

Amazon's results suggested U.S. consumers may be spending less, a potential sign of a slowing economy, said Cliff Hodge, director of investments at Cornerstone Wealth.

"They've been in a very strong environment, but you can see things start to slow down a little bit," Hodge said.

The Dow Jones Industrial Average rose 64.22 points, or 0.26 percent, to 25,063.89. The S&P 500 gained 2.43 points, or 0.09 percent, to 2,706.53 and the Nasdaq Composite dropped 17.87 points, or 0.25 percent, to 7,263.87.

While fourth-quarter results have mostly beaten expectations, there have been 27 negative earnings pre-announcements issued by companies in the S&P 500 for the first quarter, compared with nine positive, Refinitiv data show.

The negative-to-positive ratio is now 3.0, which is above the long-term average of 2.7 and above the prior four-quarter average of 1.5, Refinitiv said.

The estimated first-quarter earnings growth rate for the S&P 500 companies has declined to 0.7 percent from 5.3 percent on Jan 1, Refinitiv said.

The data suggests slower U.S. growth and adds to a growing list of economic readings indicating slowing global growth. The Caixin/Markit index of Chinese manufacturing fell to its lowest since February 2016.

Oil prices rose, lifted by signs the United States and China could soon settle their protracted trade dispute, while producer cuts and U.S. sanctions on Venezuelan exports helped tighten supply.

International Brent crude oil futures settled up $1.91 to $62.75 per barrel. U.S. West Texas Intermediate (WTI) futures rose $1.47 to settle at $55.26.

The dollar index rose 0.01 percent, with the euro up 0.13 percent to $1.159. The Japanese yen weakened 0.56 percent versus the greenback at 109.48 per dollar.

U.S. gold futures settled down 0.2 percent to$1,322.10.

Benchmark 10-year U.S. Treasury notes fell 15/32 in price to push their yield up to 2.6896 percent.

"The big news of the week is the tone of the Fed has turned a bit dovish. The outlook for a tightening phase has come to an end," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

(Reporting by Herbert Lash; additional reporting by Richard Leong; Editing by Dan Grebler and Sandra Maler)