US stocks gain as services sector data eases fears of hawkish Fed stance

"It wasn't quite as hot as we had anticipated and because it is services data, we might think that's a good thing," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

Meanwhile, Fed Chair Jerome Powell reiterated that the U.S. central bank has time to deliberate over its first interest rate cut, widely expected in June, given the strength of the economy and recent high inflation readings.

"The market has come around to the Fed's expectation for three rate cuts this year, but if we continue to get strong labor market data, it's going to push them further towards fewer than three cuts this year," said Ross Mayfield, investment strategy analyst at Baird.

Atlanta Fed President Raphael Bostic said the Fed should not cut its benchmark interest rate until the end of this year, as he maintained his view that the U.S. central bank should reduce borrowing costs only once over the course of 2024.

Traders are pricing in a 57% chance the Fed will cut interest rates by 25 basis points in June, according to CMEGroup's FedWatch tool, down from about 64% a week ago.

Earlier in the day, data showed private payrolls rose by 184,000 jobs in March, beating economists' forecast of an increase of 148,000.

The benchmark 10-year U.S. Treasury yield edged higher to 4.3792%, having hit a fresh high for the year earlier in the day.

Focus is also on the Labor Department's jobs report on Friday that is expected to show U.S. nonfarm payrolls increased by 200,000 jobs in March, following 275,000 job additions in February.

At 12:14 p.m. ET, the Industrial Average was up 23.38 points, or 0.06%, at 39,193.62, the S&P 500 was up 13.64 points, or 0.26%, at 5,219.45, and the Composite was up 56.73 points, or 0.35%, at 16,297.17.

Eight of the 11 major S&P 500 sectors were trading higher, with industrials leading gains, up 0.6%.

Most megacap growth stocks advanced, with Apple, Amazon.com and Meta Platforms up between 0.2% and 1.6%.

Ulta Beauty tumbled 14.4% after the beauty retailer gave downbeat forecast at an industry conference. Shares of e.l.f. Beauty fell 9.7%, while Coty dropped 4.5%.

Intel fell 7.2% after the chipmaker disclosed $7 billion in operating losses for its foundry business in 2023, steeper than the $5.2 billion reported the year before.

Advancing issues outnumbered decliners by a 1.36-to-1 ratio on the NYSE and by a 1.13-to-1 ratio on the Nasdaq.

The S&P index recorded 31 new 52-week highs and 3 new lows, while the Nasdaq recorded 65 new highs and 92 new lows.