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Stock market rises after Yellen’s Capitol Hill testimony

U.S. stocks traded near intraday highs on Tuesday after Federal Reserve Chairwoman Janet Yellen concluded her testimony before the Senate Banking Committee, signaling the central bank could gradually raise interest rates sooner than later.

During the testimony, stocks had been switching between small gains and losses but started carving out fresh intraday highs as the testimony wrapped up.

The SP 500 index

SPX, +0.23%

 was up 6 points, or 0.3%, at 2,334, with financials and consumer-discretionary stocks leading the gains.

The banking sector jumped after Yellen’s comments on interest rates, while rate-sensitive sectors such as utilities and real estate slumped.

“It appears that she is priming the market to expect two or three rate hikes, which has been reflected in higher moves in financials and bond yields,” said Ryan Larson, head of equity trading at RBC Global Asset Management.

Larson also noted the Fed has some degree of hesitation regarding what the fiscal stimulus will look like.

The Dow Jones Industrial Average

DJIA, +0.27%

 gained 62 points, or 0.3%, higher at 20,474, with about two-thirds of the 30 blue-chip components trading higher. Goldman Sachs Group Inc

GS, +1.35%

 and J.P. Morgan Chase Co

JPM, +1.26%

 led the gainers, up more than 1%.

The Nasdaq Composite Index

COMP, +0.22%

 rose 14 points, or 0.3%, to 5,778.

Some market participants read Yellen’s reference to the Fed raising rates at “upcoming meetings” as indicating that an increase of benchmark rates at the Fed’s March meeting, which Wall Street has been pricing in as unlikely, is still on the table. Central-bank officials last lifted the Fed-funds rate in December to a range between 0.50% and 0.75%.

Read: ‘Fed Up’ exposes the elite rot inside the Federal Reserve

Still there are those who doubt the Fed’s conviction to hike in March.

“The Fed is going to be reactive [rather] than proactive, so we don’t expect the first rate hike this year until May or June,” said Wouter Sturkenboom, senior investment strategist at Russell Investments.

Fed member forecasts for rates suggest that the central bank will raise rates three times in 2017, but the market isn’t expecting a rate increase before the Federal Open Market Committee’s June meeting, according to CME Group data.

“The Fed has the flexibility to raise rates once in the first half and raise two more times in the second half, if it sees the economy pick up steam because of tax policies,” Sturkenboom said, adding the central bank does not have to spread them out evenly throughout the year.

While Yellen’s testimony didn’t detract from earlier statements from the central bank, the door is still open for a March rate hike to stick to the Fed’s target of three rate hikes this year, said Mark Kepner, managing director of sales and trading at Themis Trading, in an interview.

“There was a little shift that there could be one in March,” Kepner said. “The market is not strongly considering it but expectations have nudged up a little bit. The Fed originally said three [rate hikes] so March could be swing month, but you still have economic numbers and the jobs report and maybe some clarification on tax policies before then.”

See: Live blog of Yellen testimony

Richmond Fed President Jeffrey Lacker, who is isn’t a voting member of the Federal Open Market Committee, said on Tuesday that almost all policy rules are recommending higher interest rates.

Treasury yields, which are sensitive to shifting rate-hike expectations, jumped on Yellen’s comments but have walked back a bit. The 10-year Treasury note

TMUBMUSD10Y, +1.69%

advanced 5.1 basis points to 2.486%, compared with 2.434% late Monday in New York. Bond yields rise as prices fall, and investors tend to unload bonds in a rising interest-rate environment in anticipation of being able to repurchasing government bonds at higher rates in the future.

Read: As euphoria overruns Wall Street, one bank sees SP 500 at 3,000 by 2019

On the data front, the National Federation of Independent Business’s small-business index for January maintained its postelection surge as business owners remained optimistic about better economic prospects under President Donald Trump’s administration. The Producer Price Index for January jumped by 0.6%, the largest rise since 2012, suggesting inflation may be heating up.

Stocks to watch: Molson Coors Brewing Co.

TAP, +3.01%

shares rose 2.9% after earnings results.

Results from American International Group Inc.

AIG, +0.77%

and Fossil Group Inc.

FOSL, +1.54%

 are due after the close.

Shares of General Motors Co.

GM, +4.77%

 rallied 5.1% after owner of French car maker Peugeot

UG, +4.32%

the PSA Group, said it is in talks with GM to buy its Opel brand. Shares of Peugeot jumped 3.7% in Paris.

Shares of Mattel, Inc.

MAT, +0.14%

 rose 0.5% after news that the toy maker will team up with Alibaba to develop and sell new products for Chinese consumers through Tmall.com.

Shares of GigPeak Inc.

GIG, +12.73%

 soared 13% after IDT Inc.

IDTI, +0.75%

 said late Monday it would buy the communications and video-chip maker in an all-cash $250 million deal.

Read: Tesla could decide to tap capital markets as its shares rally, analyst says

Disney cuts ties to YouTube superstar PewDiePie

(4:26)

Felix Kjellberg, better known as PewDiePie, has 53 million subscribers to his YouTube channel, making him the biggest star on the site by far. Now Disney says it is cutting ties to the Swedish 27-year-old after WSJ inquired about videos he posted in which he includes anti-Semitic jokes or Nazi imagery. Warning: Graphic language and content.

Other markets: Asian stocks

ADOW, -0.12%

finished mostly lower, with the Nikkei 225 index

NIK, -1.13%

 closing down 1.1% amid strength for the Japanese yen

USDJPY, +0.49%

The dollar

DXY, +0.27%

 pivoted higher as Yellen began to speak in front of the Senate, and gained against the British pound

GBPUSD, -0.4311%

 after U.K. inflation data didn’t rise by as much as expected.

Gold prices

GCJ7, -0.01%

 were slightly lower, while oil prices

CLH7, +0.77%

 firmed up. European stocks

SXXP, +0.02%

 were flat to lower.

—Sara Sjolin in London and Barbara Kollmeyer in Madrid contributed to this article.

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