Dollar rebounds, stocks mixed ahead of Fed decision

By Dion Rabouin

NEW YORK (Reuters) - Wall Street stocks pared their early gains on Wednesday as utility and energy shares in the U.S. dragged, but the dollar remained higher along with major equity markets around the world as strong data suggested the global economy was picking up steam.

U.S. factory activity hit a more than a two-year high in January and a private payrolls report shot past expectations.

Euro zone factories registered the fastest activity rate in nearly six years, China's activity expanded for the sixth month and Japanese manufacturing growth was the fastest in almost three years.

"So far, momentum is pretty strong heading into 2017," said Jacqui Douglas, Chief European Macro Strategist at TD Securities. "But political risks are definitely one of the biggest this year and, given the surprises we had through 2016, it's really hard to tell what's in store."

The dollar rose 0.4 percent Wednesday, boosted by the stronger-than-expected reading on U.S. employment and solid manufacturing data.

It had suffered its worst January in three decades after U.S. President Donald Trump complained that every "other country lives on devaluation," while the U.S sat by "like a bunch of dummies."

Bruised dollar bulls were also looking to the decision by the Federal Reserve later in the day that is expected to announce the central bank's intention to raise U.S. interest rates a number of times this year.

The S&P 500 and the Dow slipped into the red at midday, ahead of the Federal Reserve's decision on interest rates.

However, the Nasdaq, which is more technology-heavy, was lifted by a 5.6 percent rise in Apple after the company's strong earnings and iPhone sales.

"With a bellwether company such as Apple reporting an encouraging set of numbers, it has brought the focus of investors back on company fundamentals," said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.

The Dow Jones Industrial Average fell 5.03 points, or 0.03 percent, to 19,859.06, the S&P 500 lost 4.24 points, or 0.19 percent, to 2,274.63 and the Nasdaq Composite added 12.03 points, or 0.21 percent, to 5,626.82.

Both the pan-European FTSE 300 and the STOXX 600 indexes ended up around 0.8 percent.

The Nikkei added 0.56 percent and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.36 percent in a largely quiet session.

MSCI's index of emerging market bourses rose 0.5 percent.

That all combined to put MSCI's 46-country All World index on pace to snap a four-day losing streak, though the recent protectionist noises from Trump's team kept markets jittery.

U.S. Treasury yields jumped after the U.S. data from payrolls processor ADP that showed strong jobs gains in January, raising expectations that Friday's closely watched government employment report will also show strong growth.

Friday's nonfarm payrolls report is expected to show employers added 175,000 jobs last month. [ECONUS]

"ADP just served as a reminder of America's rosier fundamentals, something that has been pushed off to the side with Washington dominating the spotlight," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Benchmark 10-year Treasury notes fell 12/32 in price to yield 2.5 percent, up from 2.45 percent late on Tuesday.

Brent crude futures, the international benchmark, edged further above $55 a barrel, supported by signs that Russia and the Organization of the Petroleum Exporting Countries are delivering on promised supply reductions. However, oil prices pared gains after a larger-than-expected build in U.S. crude.

Gold fell by 0.6 percent on the strong dollar and profit-taking from its recent rise.

(Additional reporting by Wayne Cole in Sydney; Editing by Toby Chopra and Nick Zieminski)