US stocks gain as Fed mulls faster rate hikes

New York - Wall Street stocks won solid gains on Wednesday while European markets were little changed as Federal Reserve policymakers signalled they could hasten US interest rate increases.

US stocks, which had sagged during the late-December holiday period after a torrid post-election rally, scored their second straight gain in the New Year.

Stocks are rising on the "combination of improving fundamentals and the prospects of a pro-growth administration," said Art Hogan, chief market strategist at Wunderlich Securities.

In the eurozone, both Frankfurt and Paris finished essentially flat. London mustered a modest gain, while the Nikkei in Tokyo surged 2.5%.

US investors were cheered by much better than expected December US auto sales. GM shot up 5.5% and Ford 4.6%.

US retailers were also strong on greater optimism about the holiday shopping season.

Word that holiday sales picked up at the end of December "changed the impression that the holiday shopping season was a disaster and it turned out to be much closer to what had been expected," Hogan said.

Faster Fed rate hikes?

US central bankers signalled they may need to raise interest rates faster than planned due to "considerable uncertainty" linked to Donald Trump's fiscal stimulus plans, which could fan inflation, according to minutes of the final 2016 policy meeting in December at which the US central bank lifted rates.

The president-elect's pledge to slash taxes and ramp up infrastructure spending could boost demand above sustainable levels, "potentially necessitating somewhat tighter monetary policy than currently anticipated," many participants in the December 13 to 14 meeting said.

Despite these risks, the minutes repeatedly said the central bank expects it can continue to make only "gradual adjustments" in the interest rate.

The dollar retreated after the Fed minutes, in part because policy makers expressed wariness about the rising US currency, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

"While hawkish with respect to the overall outlook for US growth, the fact that the minutes highlighted the risk that a further bout of dollar strength could harm the economy caught a market already long the dollar a bit off guard," he said.

Among individual stocks, Tesla Motors surged 4.6% as it announced that it has begun mass production of energy-saving batteries that it vows will take electric cars mainstream.

In the UK, British clothing retailer Next slumped more than 12% after warning of a tougher trading year ahead as a weak pound caused by Brexit uncertainty pushes up raw material costs.

Clothing competitors Marks and Spencer and Associated British Foods, which owns also budget garment chain Primark, also fell.