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U.S. Stocks Give Back Ground In Late-Day Trading But Still Close Higher

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Buying interest was somewhat subdued, although stocks still managed to end Monday's trading mostly higher. The tech-heavy Nasdaq outperformed its counterparts after underperforming in the previous session.

The major averages gave back ground going into the close but remained in positive territory. While the Nasdaq climbed 48.37 points or 0.7 percent to 7,845.02, the Dow edged up 22.92 points or 0.1 percent to 26,112.53 and the S&P 500 inched up 2.69 points or 0.1 percent to 2,889.67.

The strength on Wall Street partly reflected optimism the Fed will signal a near-term interest rate cut when announcing its monetary policy decision on Wednesday.

Most economists expect the Fed to leave interest rates unchanged but make changes to its accompanying statement pointing to an openness to cutting rates in the near future.

CME Group's FedWatch tool currently indicates just a 17.5 percent chance the Fed will cut rates this week but a 71.2 percent chance for a rate cut next month.

Recent indications the U.S.-China trade dispute is contributing to a slowdown in U.S. economic growth has led to speculation the Fed may cut rates, with Fed Chairman Jerome Powell pledging to act "as appropriate" to sustain the expansion.

Disappointing economic data seems to have reinforced the optimism about a potential rate cut, as the New York Fed released a report before the start of trading showing a sharp downward turn in regional manufacturing activity in June.

The New York Fed said its general business conditions index plunged to a negative 8.6 in June from a positive 17.8 in May, with a negative reading indicating a contraction in manufacturing activity. Economists had expected the index to drop to a positive 10.0.

With the much record-setting monthly decrease, the general business conditions index recorded its first negative reading in over two years.

A separate report from the National Association of Home Builders showed an unexpected pullback in homebuilder confidence in the month of June.

The report said the NAHB/Wells Fargo Housing Market Index dropped to 64 in June after jumping to 66 in May. The decrease surprised economists, who had expected the index to inch up to 67.

"While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues," said NAHB Chairman Greg Ugalde.

Sector News

Biotechnology stocks showed a substantial move to the upside on the day, driving the NYSE Arca Biotechnology Index up by 2.8 percent to its best closing level in over a month.

Within the biotech sector, shares of Array BioPharma (ARRY) spiked by 56.9 percent after the biopharmaceutical company agreed to be acquired by drug giant Pfizer (PFE) in a deal valued at $11.4 billion.

Considerable strength was also visible among oil service stocks, as reflected by the 2.3 percent jump by the Philadelphia Oil Service Index.

Oilfield services company C&J Energy (CJ) helped lead the sector higher after announcing a merger with rival Keane Group (FRAC).

Natural gas, gold, and commercial real estate stocks also saw notable strength on the day, while significant weakness emerged among banking and chemical stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Japan's Nikkei 225 Index closed just above the unchanged line, while Australia's S&P/ASX 200 Index fell by 0.4 percent.

The major European markets also ended the day mixed. While the German DAX Index edged down by 0.1 percent, the U.K'.s FTSE 100 Index inched up by 0.2 and the French CAC 40 Index rose by 0.4 percent.

In the bond market, treasuries showed a lack of direction over the course of the session before closing roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.086 percent.

Looking Ahead

A report on new residential construction may attract some attention on Tuesday, although trading activity is likely to remain subdued as the Fed's two-day meeting gets underway.

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