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Stocks edge up, US rate cut expectations grow

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Yen perks up but intervention focus remains

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AI spending worries subside for now

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US markets closed for Thanksgiving holiday, trading more

muted

By Amanda Cooper

LONDON, Nov 27 (Reuters) - Stocks rose on Thursday,

while expectations for a Federal Reserve rate cut next month

kept the dollar a touch softer against most currencies although

the yen remained on intervention watch as traders weighed the

prospect of a rate hike before year-end.

A holiday-shortened week has limited some of the activity

across markets. Stocks have kept a largely upbeat tone and

currencies are much more sedate as investors shrug off AI bubble

worries that had roiled equities earlier in November.

The U.S. markets are closed for the Thanksgiving holiday on

Thursday and will only have a short session on Friday.

"THE MARKET'S KRYPTONITE"

European markets traded modestly higher, with the STOXX 600

index up 0.1%, echoing the firmer tone across Asian

equity markets overnight, as gains in defence

and tech companies offset losses in healthcare stocks.

With a Fed rate cut largely seen as a near-certainty next

month against the backdrop of an upbeat earnings season, the

most likely direction for stocks is going to be upwards,

analysts said.

"As long as your main engine is going nicely, then a lot of

the worries about valuations just get pushed up to the back foot

for the time being, until something else comes along," IG chief

markets strategist Chris Beauchamp said.

He added that the most likely catalyst to derail a rally

would come in the form of renewed concern over spending on AI,

as has been the case for weeks.

"That is the market's kryptonite at the moment," he said.

The dollar, meanwhile, headed for its first daily rise

against a basket of currencies in a week, up a modest

0.1%, due mainly to weakness in the euro and the pound.

Sterling retreated from near four-week highs hit on

Wednesday after UK finance minister Rachel Reeves' budget helped

alleviate some concern about Britain's long-term finances. The

pound was last down 0.1% on the day at $1.323.

DATA GAP CAN'T TEMPER RATE CUT EXPECTATIONS

U.S. macro data is flowing again since the record 43-day

government shutdown ended mid-November, although most of the

reports so far have been fairly out of date and offered very

little insight into the current state of the economy.

This has left investors leaning more heavily on comments

from Fed officials for some guidance on where interest rates

might go in the coming months. A number of speakers in the last

week, including San Francisco Federal Reserve Bank President

Mary Daly and Fed Governor Christopher Waller, have boosted

expectations for a December rate cut.

Traders are now pricing in an 85% chance of a rate cut next

month compared with just 30% a week earlier, CME FedWatch

showed.

George Boubouras, managing director of K2 Asset Management,

said there is enough labour market weakness to offset higher

inflation, which the Fed has signalled it can tolerate for

now.

"While core inflation is above target, the U.S. 10-year

breakeven inflation rate around 2.25% suggests

that markets are broadly comfortable inflation expectations

remain reasonable."

ROUND-THE-CLOCK YEN VIGILANCE

In the currency market, the Japanese yen was in the

spotlight, having strengthened to 156.375 per dollar from nearly

158 a week ago. Investors are watching for possible intervention

from Tokyo after weeks of verbal jawboning from authorities to

stem the currency's relentless slide.

Prime Minister Sanae Takaichi ruled out on Wednesday the

possibility that Japan could face a British-style "Truss

moment", or loss of market confidence stemming from her

administration's spending plans .

Sources told Reuters that the BOJ is preparing markets for a

possible rate hike as soon as next month as it may take a more

consistent rate hike path to alter the trajectory of the

currency.

Bitcoin rose 1.1% to $91,143 on Thursday, set to break a

four-week losing streak with a nearly 3% gain. Gold eased

0.17% to $4,156 an ounce, having gained 0.8% in the previous

session.