S&P, Dow close higher; Brent falls after hitting $65

By Stephanie Kelly

NEW YORK (Reuters) - The S&P 500 and the Dow closed higher on Tuesday along with major European stock indexes a day ahead of the Federal Reserve's expected U.S. interest rate hike, while Brent crude oil fell after reaching $65 per barrel for the first time since mid-2015.

The Fed, whose two-day policy meeting ends Wednesday, is widely expected to raise its benchmark rate to between 1.25 and 1.50 percent.

The S&P and the Dow hit record closing highs, boosted by bank stocks as investors focused on a potential cut in U.S. corporate tax rates and continued strong economic growth.

 

"As investors become more comfortable (that) the economic recovery appears to be expanding, they're starting to dip their toes into the value sectors like industrials, financials and energy that need earnings growth to expand," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

The Dow Jones Industrial Average <.DJI> closed 118.77 points, or 0.49 percent, higher at 24,504.8, the S&P 500 <.SPX> gained 4.12 points, or 0.15 percent, to 2,664.11 and the Nasdaq Composite <.IXIC> dropped 12.76 points, or 0.19 percent, to 6,862.32.

Mergers and acquisitions helped boost European stocks, with the pan-European STOXX 600 <.STOXX> index closing up 0.66 percent.

Shares of Gemalto , a Netherlands-based digital security services company, surged 34.6 percent after a 4.3 billion euro bid from French tech consultancy Atos .

The earlier jump in oil prices also boosted energy-heavy European stock indexes, with the STOXX 600's oil and gas sector <.SXEP> jumping 1.56 percent.

MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.02 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.43 percent.

OIL

Brent was last at $63.56 per barrel, down 1.75 percent. Oil prices rose to a more than two-year high earlier after Britain's Forties pipeline was shut due to cracks as a cold snap swept the country.

U.S. crude fell 1.26 percent to $57.26.

The Forties pipeline is important for the global oil market because the crude it carries normally sets the price of dated Brent, a benchmark used to price physical crude around the world and which underpins Brent futures.

The shutdown comes as oil supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) have helped drain some of the excess inventories built up following a global supply glut which began to emerge in late 2014.

Investors will keep their focus on policy decisions worldwide, with a slate of central banks, including the Fed, the European Central Bank and the Bank of England, set to meet this week.

The U.S. dollar rose against a basket of currencies as the Fed began its meeting. Investors will watch for any signs that Fed officials are more optimistic on the prospect of faster growth as lawmakers appear close to passing a major overhaul of the tax code.

The dollar index <.DXY> rose 0.19 percent, with the euro > down 0.2 percent to $1.1745.

The Japanese yen strengthened 0.05 percent versus the greenback at 113.51 per dollar >, while sterling > was last trading at $1.3317, down 0.15 percent on the day.

The New Zealand dollar > reached a one-month high earlier as investors welcomed the appointment of national pension fund chief Adrian Orr to head the Reserve Bank.

U.S. Treasury yields rose as stronger-than-forecast data on producer prices in November offset average demand at a $12 billion auction of 30-year bonds.

The two-year yield reached its highest in more than nine years as traders anticipated a Fed rate increase.

Benchmark 10-year notes > last fell 4/32 in price to yield 2.3993 percent, from 2.385 percent late on Monday.

The 30-year bond > last fell 2/32 in price to yield 2.7746 percent, from 2.772 percent late on Monday.

(Reporting by Stephanie Kelly in New York; Additional reporting by Ritvik Carvalho, Helen Reid and Danilo Masoni in London, Bryan Sims in Houston, Rama Venkat Raman and Sruthi Shankar in Bengaluru, Sinead Carew and Caroline Valetkevitch in New York; Editing by Daniel Bases and James Dalgleish)