NEW YORK, Sept 17 (Reuters) - U.S. stock markets gave back some early gains and the dollar firmed on Tuesday, as strong economic data allayed slowdown fears ahead of a policy meeting on Wednesday where the Federal Reserve is expected to cut interest rates.
Signs of a slowing job market over the summer and more recent media reports had contributed in the past week to betting the Federal Reserve would move more drastically than usual, shaving off half a percentage point, to head off any weakness.
Data on Tuesday showed U.S. retail sales rose in August and production at factories rebounded. Stronger data could theoretically weaken the case for a more aggressive cut.
"That points to a healthy state of the economy," said Peter Cardillo, chief market economist at Spartan Capital Securities. Cardillo expects Fed Chair Jerome Powell to cut rates by 25 basis points on Wednesday, and would be looking for clues to future moves.
"He might hint the Fed could be more aggressive in the coming meetings. ... I think they start off being cautious," he said.
Across the broader market, traders are still betting on a 63% probability that the Fed will cut rates by 50 basis points on Wednesday and a 37% probability of a 25 basis point cut, according to CME Group's FedWatch tool.
The S&P 500 (.SPX), rose to an all-time intraday high at one point in the session, but flattened in afternoon trading and was last quoted down 0.01% at 5,632.63. The Dow Jones Industrial Average (.DJI), fell 0.04% to 41,604.83.
The tech-heavy Nasdaq Composite (.IXIC), bucked the trend with a 0.15% rise to 17,618.86.
MSCI's All-World index (.MIWD00000PUS), was unchanged at 828.43.
"Everyone's pricing in the soft landing and it feels like the Fed have been quite transparent that we're in a rate cutting environment. Generally stocks have done well post those sort of environments," said Eddie Kennedy, head of bespoke discretionary fund management at Marlborough Investment Management.
STRONGER DOLLAR
The dollar perked up from its recent lows against most major currencies on Tuesday. The index , which measures the greenback against a basket of currencies, rose 0.22% to 100.92.
Beyond the United States, the Bank of England (BoE) and the Bank of Japan (BOJ) also meet this week to discuss monetary policy, but unlike the Fed are expected to keep rates on hold.
The dollar strengthened further against the Japanese yen , gaining 0.92% to 141.9.
The two-year U.S. Treasury yield , which typically reflects near-term rate expectations, stayed 3.7 basis points higher at 3.5923%, having fallen to a two-year low of 3.528% in the previous session.
The benchmark 10-year yield rose 2.1 basis points to 3.642%, from 3.621% late on Monday.
In Asia, China's stuttering economic recovery continued to weigh on sentiment after data over the weekend showed the country's industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further.
Oil prices rose as the industry continued to survey the impact of Hurricane Francine on output in the U.S. Gulf of Mexico.
U.S. crude settled 1.57% higher at $71.19 a barrel. Brent finished the day at $73.7 per barrel, up 1.31%.
Spot gold fell further, losing 0.44% to $2,571.17 an ounce, having touched a record high on Monday.
Reporting by Isla Binnie; additional reporting by Samuel Indyk; Editing by Sharon Singleton, Chizu Nomiyama, Barbara Lewis and Jonathan Oatis
