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U.S. dollar, stocks up on strong service sector report

Investors talk in front of a screen showing stock information at a brokerage house in Hangzhou, Zhejiang province, August 3, 2015. REUTERS/China Daily

By Herbert Lash

NEW YORK (Reuters) - The U.S. dollar rose against major currencies on Wednesday after data showed the pace of growth in the U.S. service sector surged in July to its best level in a decade, lifting most stocks on Wall Street while solid corporate earnings pushed equities higher in Europe.

Led by sharp increases in business activity, employment and new orders, the U.S. Institute for Supply Management's services sector index rose to 60.3, its highest reading since August 2005, beating expectations of 56.2.

The data backed views the Federal Reserve will raise interest rates in September after weaker-than-expected private hiring figures for July released earlier on Wednesday briefly raised doubts about a rate hike next month.

"For most people watching the market, whether it's September or December isn't that critical, most people are assuming it will happen this year. They've already factored that in to the way they look at the market," said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.

The dollar also gained after Atlanta Federal Reserve President Dennis Lockhart, regarded as a centrist policymaker, on Tuesday put September back on the table for the first U.S. rate rise in almost a decade in an interview with The Wall Street Journal.

Lockhart said it would take "significant deterioration" in the U.S. economy for him to not support a rate hike next month.

Against the yen, the greenback rose to a two-month high with the U.S. dollar index up 0.06 percent at 97.991.

In equity markets, the Dow Jones industrial average fell 20.64 points, or 0.12 percent, to 17,530.05. The S&P 500 rose 5.76 points, or 0.28 percent, to 2,099.08 and the Nasdaq Composite added 35.86 points, or 0.7 percent, to 5,141.40.

Stocks gained more than 1.0 percent in Europe, with the pan-European FTSEurofirst 300 index closed up 1.31 percent at 1,601.66. MSCI's all-country world stock index rose 0.24 percent.

Societe Generale shares jumped 7.9 percent after the French bank became the latest major European company to post forecast-beating earnings, while regional automakers, which fell in late July on concerns about a slowing China, rallied. The STOXX Europe index of 15 companies rose 2.5 percent.

In debt markets, U.S. Treasuries prices fell, while a sell-off in European bonds accelerated, after the strong ISM report.

The benchmark 10-year U.S. Treasury note fell 16/32 in price to yield 2.2681 percent.

German 10-year yields, the euro zone's benchmark, jumped 12 basis points to 0.75 percent.

U.S. crude oil futures slide to 4-1/2 month lows as traders fretted about a surge in refinery runs and gasoline inventories as the summer season, which counts for the country's biggest demand period for motor fuels, neared its end.

September Brent crude oil futures fell 72 cents to $49.27 a barrel. U.S. crude for September delivery gained 68 cents to trade at $45.06 a barrel.


(Editing by Larry King and Meredith Mazzilli)