US STOCKS-Nasdaq hits three-month high as PayPal fuels optimism

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* U.S. service sector unexpectedly picks up in July

* PayPal rises after raising profit outlook

* Moderna jumps on $3 billion share buyback plan

* Indexes: S&P 500 +1.58%, Nasdaq +2.53%, Dow +1.31% (Updates with details on afternoon trading, trader comment)

By Noel Randewich and Devik Jain

Aug 3 (Reuters) – Wall Street rallied on Wednesday, with strong profit forecasts from PayPal and CVS Health Corp lifting sentiment and helping drive the Nasdaq to its highest level since early May.

Data showed the U.S. services industry unexpectedly picked up in July amid strong order growth, while supply bottlenecks and price pressures eased. This supported views that the economy was not in recession despite output slumping in the first half of the year.

A fresh batch of strong results from companies including PayPal and CVS Health Corp boosted sentiment in a largely upbeat quarterly reporting season. It has helped markets rebound from losses caused by worries about decades-high inflation, rising interest rates and shrinking economic output.

“We’re going through Q2 earnings and, by and large, from the tech complex to consumer discretionary and industrials, we’re seeing a lot of better-than-feared prints, and that’s just good enough right now,” said Sahak Manuelian, managing director of trading at Wedbush Securities in Los Angeles.

Apple and Amazon jumped more than 3% each, while Facebook-owner Meta Platforms rallied almost 5%.

PayPal Holdings jumped 9.5% after it raised its annual profit guidance and said activist investor Elliott Management had an over $2 billion stake in the financial technology firm.

CVS Health Corp gained 5.4% as the largest U.S. pharmacy chain raised its annual profit forecast after posting strong quarterly results.

Manuelian said an additional factor behind Wednesday’s stock rally was growing confidence among investors that the Fed has already carried out the bulk of the interest rate hikes that will be necessary to bring inflation under control.

Meanwhile, Richmond Federal Reserve President Thomas Barkin on Wednesday joined policymakers saying that the U.S. central bank is committed to getting inflation under control and returning it to its 2% target.

In afternoon trading, the S&P 500 was up 1.58% at 4,155.65 points.

The Nasdaq gained 2.53% to 12,661.05 points, while the Dow Jones Industrial Average was up 1.31% at 32,819.72 points.

Additional data on Wednesday showed new orders for U.S.-manufactured goods increased solidly in June and business spending on equipment was stronger than initially thought, pointing to underlying strength in manufacturing despite rising interest rates.

Of the 11 S&P 500 sector indexes, 10 rose, led by information technology, up 2.63%, followed by a 2.59% gain in consumer discretionary.

The S&P 500 has rebounded about 13% from its closing low in mid-June and would have to climb another 15% to get back to its record high close in early January.

Moderna Inc surged over 16% after the vaccine maker announced a $3 billion share buyback plan.

Regeneron Pharmaceuticals climbed 6.1% after it beat quarterly revenue estimates, while coffee chain Starbucks Corp rose 4.4% after it reported upbeat quarterly profits.

Advancing issues outnumbered falling ones within the S&P 500 by a four-to-one ratio. The S&P 500 posted two new highs and 30 new lows; the Nasdaq recorded 42 new highs and 31 new lows. (Reporting by Aniruddha Ghosh and Devik Jain in Bengaluru and by Noel Randewich in Oakland, Calif; Editing by Sriraj Kalluvila, Arun Koyyur and Cynthia Osterman)

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