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Indexes up: Dow 0.89%, S&P 500 0.96%, Nasdaq 0.94%

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Tesla up on robotaxi launch in Texas

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US business activity moderates; price pressures building

up

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Crude drops as Iran retaliation leaves shipping routes

undisrupted

(Updates with closing prices)

By Stephen Culp

NEW YORK, June 23 (Reuters) -

Wall Street rallied on Monday as prospects of the U.S.

Federal Reserve cutting interest rates as early as July offset

uncertainty about escalating turmoil in the Middle East.

All three major U.S. stock indexes closed sharply

higher. Consumer discretionary stocks led the sector

gainers, with a solid boost from Tesla.

"The rally is a bit surprising," said Jay Hatfield, CEO and

portfolio manager at InfraCap in New York. "In a way, the U.S.

attack puts an end to the uncertainty of whether the U.S. is

going to attack."

"The market action is extremely bullish because this is the

time frame in June when we're supposed to have a pullback,"

Hatfield added. "People do not want to sell in this market."

Fed Vice Chair Michelle Bowman said on Monday "it is time to

consider adjusting the policy rate," as risks to the job market

outweigh inflationary concerns related to tariffs. Chicago Fed

President Austan Goolsbee said that thus far, tariffs have had a

more modest economic impact than expected.

Financial markets are pricing in at least two 25-basis-point

rate cuts before year-end. The first cut is widely expected to

happen in September.

"I've been in the camp that the Fed probably would not move

at all this year," said Paul Nolte, senior wealth advisor &

market strategist at Murphy & Sylvest in Elmhurst, Illinois.

"(Fed Chair) Powell's 'wait and see' is probably not a bad

tactic, but of course, the markets always love lower interest

rates."

Tesla shares surged after the long-awaited launch

of the company's robotaxi service in Austin, Texas. The electric

vehicle maker's shares advanced 8.2%.

Israel continued to bombard Iran the day after the U.S.

joined the war.

Still, oil prices tumbled after Iran's retaliation

did not include action to disrupt oil and gas tanker traffic

through the Strait of Hormuz. Tehran had warned it would close

the Strait of Hormuz, a crucial oil shipping route.

"The markets are reading this as 'hey, we're successful,' we

took out their nuclear capabilities and we were able to support

any counter-strikes," Nolte said. "I think there was a lot of

concern that Iran would do much more than it did."

On the economics front, S&P Global's advance "flash"

purchasing managers' indexes (PMI) showed the U.S. economy is

expanding at a slightly more robust pace than analysts

anticipated. A separate report showed new home sales, while

under pressure from elevated borrowing costs, posted an

unexpected gain in May.

Later in the week, the Commerce Department's final take on

first-quarter GDP and its Personal Consumption Expenditures

(PCE) and Fed Chair Jerome Powell's congressional testimony are

likely to be parsed for clues regarding the near-term path of

monetary policy.

The Dow Jones Industrial Average rose 374.96 points,

or 0.89%, to 42,581.78, the S&P 500 gained 57.33 points,

or 0.96%, to 6,025.17 and the Nasdaq Composite

gained 183.57 points, or 0.94%, to 19,630.98.

Among the 11 major sectors of the S&P 500, consumer

discretionary stocks led the gainers, while energy,

weighed by falling crude prices, was the only sector to close in

negative territory.

Fiserv's ( FI ) shares rose 4.4% following its

announcement

that it would launch a new digital asset platform.

Northern Trust ( NTRS )

jumped 8.0% after a Wall Street Journal report

said Bank of New York Mellon ( BK ) broached the topic of a

potential merger.

AI-server-maker

Super Micro Computer ( SMCI )

dropped 9.8% after it announced a private offering

of $2 billion five-year convertible bonds.

Quarterly results from sportswear company Nike ( NKE )

and package delivery firm FedEx ( FDX ) are expected later in

the week.

Advancing issues outnumbered decliners by a 2.35-to-1

ratio on the NYSE. There were 128 new highs and 71 new lows on

the NYSE.

On the Nasdaq, 2,591 stocks rose and 1,875 fell as

advancing issues outnumbered decliners by a 1.38-to-1 ratio.

The S&P 500 posted 12 new 52-week highs and 4 new lows

while the Nasdaq Composite recorded 91 new highs and 113 new

lows.

Volume on U.S. exchanges was 18.60 billion shares,

compared with the 18.16 billion average for the full session

over the last 20 trading days.