US stocks build on year-end rally after steel merger, rate cut talks

Stocks on Wall Street finished the day mostly higher Monday as traders reacted to news of a large steel acquisition and both caution and optimism from a number of senior US Federal Reserve officials about interest rates. 

But trading in Europe and Asia was less enthusiastic, with stocks driven lower by surging oil prices on the news that more companies were avoiding the Red Sea amid ongoing attacks against cargo ships by Yemen's Iran-backed Huthi rebels.

The Dow Jones Industrial Average was flat, while the broad-based S&P 500 and the tech-heavy Nasdaq Composite Index both rose. 

"The market is up, but it's not broadly based, and I think more so due to the M&A that we got this morning," said Peter Cardillo of Spartan Capital Securities.

Japan's Nippon Steel agreed to buy US Steel Corp for $14.1 billion, the companies announced on Monday, sparking criticism about the firm's ownership in an industry crucial to US national security.

US Steel's share price surged more than 26 percent following the announcement.

Fed officials cautiously optimistic

Meantime, comments from three senior US Fed officials pointed to a mix of both optimism and concern, amid a market rally fueled largely by speculation the US central bank will soon begin cutting interest rates. 

The Fed voted to hold its key lending rate steady at a meeting last week and penciled in three interest rate cuts for next year. 

In an interview published Monday, San Francisco Fed President Mary Daly told the Wall Street Journal that she thought interest-rate policy was in a "good place" to bring inflation down to the Fed's long-term target of two percent. 

"We're acknowledging progress when progress is there," said Daly, an incoming voter on the Fed's rate-setting committee. 

"The markets are a little bit ahead," Cleveland Fed President Loretta Mester told the Financial Times in another interview published Monday. 

"They jumped to the end part, which is 'We're going to normalize quickly', and I don't see that," added Mester, who will also become a voting member of the Fed's rate-setting committee from January. 

But Chicago Fed President Austan Goolsbee said he was confused by the strong market reaction since the Fed's decision. 

Goolsbee will lose his vote on the Fed's rate-setting committee at the end of the year, along with the presidents of the Minneapolis, Philadelphia, and Dallas Fed banks. 

Oil prices jump

In Europe, all major stock indexes closed lower following a surge in oil prices on concerns about Red Sea Shipping. 

Yemen's Iran-backed Huthi rebels said Monday that they had attacked two "Israeli-linked" vessels in the Red Sea, the latest in a flurry of drone and missile strikes on vessels entering the waters aimed at pressuring Israel over its war with Hamas in the Gaza Strip.

Five of the world's six largest shipping companies have announced they will not send ships through the Red Sea. On Monday, British oil giant BP and Taiwan's Evergreen became the latest to suspend transit. 

Ships must travel through the Red Sea to use the Suez Canal, a key transit route for cargo and oil.

In response to the attacks, the United States on Monday announced a 10-nation coalition against Huthi attacks.

"These suspensions mean that cargos face a lengthy diversion around the Horn of Africa which will add significant costs to company supply chains, as well as having significant inflationary impacts," said market analyst Michael Hewson at CMC Markets.

Investors are also keeping tabs on the Bank of Japan's meeting this week, though speculation it will shift away from a policy of not hiking rates has faded in recent weeks.