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Stock gains fizzle out as attention turns back to China, trade

Stocks fell Tuesday, with the S&P 500 declining after five straight days of gains as investors turned attention back to global trade worries.

The S&P 500 (^GSPC) slipped 0.03%, or 1.01 points, as of market close. The consumer staples sector outperformed, while the industrials sector lagged. The Dow (^DJI) inched down 0.05%, or 14.17 points, after earlier in the session gaining as many as 186 points. The Nasdaq (^IXIC) slipped 0.01%, or 0.6 points.

China remained a focal point for investors against a backdrop of a trade tensions, and concerns of a global economic slowdown. Newly announced stimulus measures from China’s central government and currency support efforts from the central bank initially helped spark a global rally Tuesday morning.

Overnight, China’s Ministry of Finance announced it would ease restrictions on spending by local governments, allowing them to use proceeds from special bond sales to fund certain major projects.

The move would help fuel the Chinese economy by way of infrastructure investment – a pivot away from the strategies the government had introduced earlier this year, which included tax cuts.

Meanwhile, China’s central bank set its reference rate for the yuan at a stronger-than-expected fixing, helping to allay fears that the country would weaponize its currency amid a trade dispute with the U.S.

The People’s Bank of China’s reference rate was set at 6.8930 per U.S. dollar, above the 6.9089 expected. The central bank also said it plans to sell yuan-denominated bills in Hong Kong later this month, further supporting the currency.

In late May, the U.S. Treasury Department had declined to label China a currency manipulator in its semi-annual foreign exchange report to Congress. However, the country was listed alongside eight other nations on a watch list for potential unfair currency practices.

Meanwhile, tensions between the U.S. and China have continued to tighten. President Donald Trump threatened once again to raise tariffs on Chinese goods if President Xi Jinping does not meet him at the G20 Summit in Japan, he said during an interview with CNBC.

The conference, set to begin June 28, is expected to set the stage for the two to discuss and work toward resolving the trade war between their nations.

Later Wednesday afternoon, Treasury Secretary Steven Mnuchin is set to speak at the Wall Street Journal’s CFO Network forum in Washington to discuss the possible shape of a trade deal between the U.S. and China.

ECONOMY

U.S. producer prices, excluding volatile food and energy prices, rose 2.3% over last year in May. This matched consensus estimates, and marked the slowest pace of gains since January 2018, according to data from a Department of Labor report Tuesday.

The producer price index excluding food and energy prices is closely monitored as a gauge of underlying trends in U.S. producer prices. Inclusive of all categories, producer prices rose 1.8% from last year, short of the 2.0% increase projected and last month’s 2.2% rise.

Separately, small business optimism jumped 1.5 points to 105.0 in May, exceeding consensus expectations by 3 points and increasing from the previous month’s 103.5 reading. The measure of optimism among small business owners has now exceeded pre-shutdown levels and risen to the highest level since October, according to the National Federation of Independent Business.

“Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales,” NFIB President and CEO Juanita D. Duggan said in a statement. “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees, and the economy as a whole.”

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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