US STOCKS-Wall Street gains as dour services data raises rate-cut expectations

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* Sept. ISM services sector activity falls more than
expected
* Data boosts bets of interest rate cut in Oct.
* PepsiCo rises after quarterly beat
* Indexes: Dow +0.30%, S&P 500 +0.64%, Nasdaq +0.97%

(Updates to afternoon)
By Noel Randewich
Oct 3 (Reuters) - Wall Street climbed on Thursday after data
showing services-sector activity at a three-year low fueled
expectations that the Federal Reserve would cut interest rates
to stem a wider economic downturn.
Microsoft MSFT.O rose 1.2% and Facebook FB.O added 2.7%,
the two contributing more than any other companies to the S&P
500's gain.
The market dropped after the Institute for Supply Management
(ISM) said its non-manufacturing activity index fell to a
reading of 52.6 in September, the lowest since August 2016.
That added to fears sparked on Tuesday when a report showed
U.S. factory activity contracted to its lowest level in more
than a decade, as well as data on Wednesday showing private
payrolls growth in August was not as strong as previously
estimated.
But stock prices bounced back from the dour economic data as
bets on a third U.S. rate cut this year at Fed's October policy
meeting surged to 90% from 40%, according to CME Group's Fed
Watch tool.
"The degradation of the data, especially the
non-manufacturing data, kind of pushes the Fed to another cut,"
said Kim Forrest, chief investment officer at Bokeh Capital
Partners in Pittsburgh.
Traders are now again expecting at least four rate
reductions by the end of 2019, which they had abandoned after
the central bank described each of its last two rate cuts as a
"mid-cycle adjustment." MMT/
"We are at a critical point. Global growth is slowing and
U.S. growth is decelerating because of trade disputes and
uncertainty caused by trade policy," said Ben Phillips, chief
investment officer at EventShares. "But the market loves easy
money, and when it gets a whiff of it, it gets high."
Investors now await a pivotal jobs report on Friday for more
signs of whether the U.S.-China trade war is pushing the world's
largest economy toward a recession.
The three main stock indexes recorded their deepest one-day
percentage slide in six weeks on Wednesday, with each of them
losing 3% over the last two sessions.
At 2:07 pm ET, the Dow Jones Industrial Average .DJI was
up 0.3% at 26,158.04 points, while the S&P 500 .SPX gained
0.64% to 2,906.04.
The Nasdaq Composite .IXIC added 0.97% to 7,860.58.
PepsiCo Inc PEP.O rose 3.9% after beating quarterly
expectations as higher advertising and new low-calorie versions
of Gatorade boosted demand for its beverages in North America.
Its shares pushed the consumer staples .SPLRCS sector 1.0%
higher. Ten of the 11 major sectors were up.
Losses in the interest-rate sensitive U.S. lenders pulled
the financial sector .SPSY down 0.2%.
Corona maker Constellation Brands Inc STZ.N fell 5.4%
after it took a $839 million mark down in the value of its
investment in pot firm Canopy Growth WEED.TO during the
quarter. Advancing issues outnumbered declining ones on the NYSE by a
1.44-to-1 ratio; on Nasdaq, a 1.35-to-1 ratio favored advancers.
The S&P 500 posted nine new 52-week highs and 20 new lows;
the Nasdaq Composite recorded three new highs and 102 new lows.


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