Wall St pares losses after IMF urges delay in rate hike

By Tanya Agrawal

(Reuters) - U.S. stocks rebounded after the International Monetary Fund warned that the U.S. Federal Reserve should delay a rate hike until the first half of 2016.

Wall Street was pressured earlier in the day due to a persistent selloff in the global bond market and a sharp fall in U.S. nonfarm productivity in the first quarter.

"Based on the mission's macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," IMF said, adding that rates should not be raised until there are signs of a pickup in wages and inflation.

Nonfarm productivity fell at a 3.1 percent annual rate instead of the previously reported 1.9 percent pace, leading to a jump in labor-related production costs. This was the first back-to-back fall in productivity since 2006.

Economists say muted productivity growth, if sustained, raises the risk of a faster pick-up in inflation, and calls for more aggressive interest rate increases than the Federal Reserve and financial markets currently anticipate.

Other data showed that initial claims for state unemployment benefits dropped to 276,000 for the week ended May 30. Economists had forecast claims falling to 279,000.

The numbers point to a resilience in the labor market despite moderate economic growth and come a day ahead of the monthly jobs data.

U.S. benchmark Treasury yields, which jumped to their highest in seven months on Wednesday, lost some ground after the weekly jobs data.

German 10-year Bund yields, the benchmark for European debt costs, rose to 2015 highs on Thursday.

"It has been complacency more than anything else," said Don Bright, director at Bright Trading.

"Markets have been in a narrow trading range for quite a while. I don't see a lot of intra day volatility and there is no direction that's really coming from anywhere."

At 10:14 a.m. EDT the Dow Jones industrial average was down 3.8 points, or 0.02 percent, at 18,072.47, the S&P 500 was down 2.44 points, or 0.12 percent, at 2,111.63 and the Nasdaq Composite was down 3.65 points, or 0.07 percent, at 5,095.58.

All the 10 major S&P 500 sectors were lower with teleservices leading the losses with a 1.21 percent decline.

Verizon's fell 1.9 percent to $48.12 and was the biggest percentage loser on the S&P and Dow, after JP Morgan cut its rating on the stock to "neutral" from "overweight".

T-Mobile shares rose 4.2 percent to $39.95 after the Wall Street Journal reported that Dish Networks is in talks to merge with the company. Dish rose 5.2 percent to $74.48.

AerCap Holdings fell 3 percent to $48.81 after insurer AIG hastened efforts to sell stake in the aircraft leasing company.

J.M. Smucker fell 2.7 percent to $114.95 after the company reported a quarterly loss hurt by higher green coffee costs and lower demand for its coffee products in the United States following price increases.

Declining issues outnumbered the advancers on the NYSE by 1,902 to 849, for a 2.24-to-1 ratio on the downside. On the Nasdaq, 1,570 issues fell and 847 advanced for a 1.85-to-1 ratio favoring decliners.

The S&P 500 showed three new 52-week highs and four new lows, while the Nasdaq recorded 46 new highs and 14 new lows.

(Editing by Saumyadeb Chakrabarty)