Stocks diverge as US economy shows resilience

Stocks diverged Thursday as investors weighed strong US economic data against further signs that central banks are likely to continue hiking interest rates to fight inflation.

Wall Street stocks advanced while Treasury yields and the dollar rose after the Commerce Department sharply raised the United States' first quarter growth rate to 2.0 percent.

Although this was below the growth rate of the prior two quarters, the solid first-quarter reading suggests resiliency in the US economy despite a series of interest rate hikes implemented by the Federal Reserve to cool inflation.

Strong consumer spending helped drive growth during the January to March period.

The new evidence of US economic robustness "has left investors wondering whether they've once again underestimated how much monetary tightening is going to be necessary," said OANDA trading platform analyst Craig Erlam.

"Resilience is not something we usually complain about but on this occasion, it could be to the economy's detriment," Erlam said.

The latest data on first-time jobless claims, which dipped to 239,000 last week, also pointed to continued strength in the US economy.

Speaking at a banking event in Madrid, Fed boss Jerome Powell on Thursday reiterated his warning that two more US rate hikes were probably necessary by the end of the year, as there was still "a long way to go" to bring inflation down to the Fed's two-percent target.

A day earlier, he told an annual gathering of central bankers in Sintra, Portugal, that "policy hasn't been restrictive enough for long enough."

Powell's comments came after European Central Bank chief Christine Lagarde said eurozone borrowing costs would continue to rise, even as the economy of the 20-nation currency zone is in recession.

Fresh German inflation data likely adds to the odds of more ECB actions.

The annual inflation rate in Europe's biggest economy rose to 6.4 percent, up from 6.1 percent in May, according to preliminary figures released by the federal statistics office Destatis.

Sweden on Thursday hiked its key interest rate to 3.75 percent, the highest level in nearly 15 years.

Europe's major stock markets ended mixed, with London shedding 0.4 percent as shares in water utilities slumped following reports that the government is considering temporary renationalization of indebted supplier Thames Water.

In Asian markets, worries over the outlook for China weighed on sentiment in Hong Kong and Shanghai after mainland officials failed to provide any details on plans to boost growth, despite pledges of help.

New York - Dow: UP 0.8 percent at 34,122.42 (close)

New York - S&P 500: UP 0.5 percent at 4,396.44 (close)

New York - Nasdaq: FLAT at 13,591.33 (close)

London - FTSE 100: DOWN 0.4 percent at 7,471.69 (close)

Frankfurt - DAX: FLAT at 15,946.72 (close)

Paris - CAC 40: UP 0.4 percent at 7,312.73 (close)

EURO STOXX 50: UP 0.2 percent at 4,354.69 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 33,234.14 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 18,934.36 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,182.38 (close)

Euro/dollar: DOWN at $1.0872 from $1.0913 on Wednesday

Pound/dollar: DOWN at $1.2613 from $1.2636

Dollar/yen: UP at 144.82 yen from 144.48 yen

Brent North Sea crude: UP 0.4 percent at $74.34 per barrel

West Texas Intermediate: UP 0.4 percent at $69.86 per barrel