US STOCKS-Wall Street gains as services data raises odds on Fed rate cuts

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* Sept. ISM services sector activity falls more than
expected
* Data boosts bets of interest rate cut in Oct.
* PepsiCo rises after quarterly beat
* Indexes up: Dow 0.25%, S&P 0.53%, Nasdaq 0.82%

(Updates to early afternoon)
By Medha Singh and Arjun Panchadar
Oct 3 (Reuters) - Wall Street's main indexes rose in
volatile trading on Thursday as U.S. services sector activity
slowed to a three-year low, fueling hopes of further easing in
monetary policy by the Federal Reserve to stem a wider economic
downturn.
Technology stocks Apple Inc AAPL.O and Microsoft Corp
MSFT.O were among the biggest boost to the three indexes.
The indexes dropped about 1% after ISM's non-manufacturing
activity index for September fell to 52.6 from 56.4 the month
before and below expectations of 55.0. Still, a reading above 50
denoted an expansion in the sector. But they bounced back as bets of a third U.S. rate cut this
year at Fed's October policy meeting surged to 90.3% from 39.6%,
according to CME Group's Fed Watch tool.
Traders are now again expecting at least four rate
reductions by the end of 2019, which they had abandoned after
the central bank described each of its last two rate cuts as a
"mid-cycle adjustment." MMT/
"The degradation of the data, especially the
non-manufacturing data, kind of pushes the Fed to another cut,"
said Kim Forrest, chief investment officer at Bokeh Capital
Partners in Pittsburgh.
"This is very familiar to the post-2008 world where we get
bad news and the market rallies because we are anticipating a
rate cut."
Investors now await a pivotal jobs report on Friday after
dismal manufacturing and hiring data raised fears of the
U.S.-China trade war pushing the world's largest economy into a
recession.
The three indexes recorded their deepest one-day percentage
slide in six weeks on Wednesday, with each of them losing 3%
over the last two sessions.
That pushed the benchmark index 4% below its all-time high
hit in July even though it came within striking distance of that
level two weeks ago.
Investors seem torn between growing evidence of a sharp
domestic slowdown that have stoked fears of a global recession
and hopes that these data-points would convince the Fed to cut
borrowing costs further.
At 13:00 ET (1700 GMT), the Dow Jones Industrial Average
.DJI was up 66.22 points, or 0.25%, at 26,144.84 and the S&P
500 .SPX was up 15.40 points, or 0.53%, at 2,903.01. The
Nasdaq Composite .IXIC was up 64.05 points, or 0.82%, at
7,849.29.
PepsiCo Inc PEP.O rose 4.1% after beating quarterly
expectations as higher advertising and new low-calorie versions
of Gatorade boosted demand for its beverages in North America.
Its shares pushed the consumer staples .SPLRCS sector 1.0%
higher. Ten of the 11 major sectors were trading higher.
Losses in the interest-rate sensitive U.S. lenders pulled
the financial sector .SPSY down 0.27%.
Leading the decliners on the S&P 500 was Corona maker
Constellation Brands Inc STZ.N , which fell about 5.7% as it
took a $839 million mark down in the value of its investment in
pot firm Canopy Growth WEED.TO during the quarter.
Advancing issues outnumbered decliners by a 1.18-to-1 ratio
on the NYSE and a 1.12-to-1 ratio on the Nasdaq.
The S&P index recorded nine new 52-week highs and 20 new
lows, while the Nasdaq recorded three new highs and 94 new lows.

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