By Riva Gold

U.S. stocks rose Monday and expectations that the Federal Reserve will raise interest rates this year boosted the dollar.

Major U.S. stock indexes are coming off their biggest weekly declines since Brexit after Fed Chairwoman Janet Yellen said Friday that the case for a rate rise had improved.

The Dow Jones Industrial Average rose 76 points, or 0.4%, to 18471 shortly after the opening bell. The S&P 500 gained 0.4% and the Nasdaq Composite added 0.2%. Shares in Europe and Asia mostly declined.

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.3%, building on its biggest weekly rise since May.

Ms. Yellen's statement was later reinforced by Fed Vice Chairman Stanley Fischer, who suggested that the U.S. central bank could act as soon as next month.

Fed-fund futures, used by investors to bet on central bank policy, recently suggested a 30% probability of a rate rise in September, compared with a 21% chance on Thursday, according to data from CME Group. The odds for a rate rise by the end of year were close to 60%.

The prospect of higher rates tends to strengthen the dollar but weaken stock markets, which have been boosted by years of ultraloose monetary policy.

"For quite some time now, earnings have been flat or negative, and what has been supportive of valuations has been liquidity," said Ernie Cecilia, chief investment officer at Bryn Mawr Trust.

While a 0.25 percentage-point rise doesn't materially change borrowing costs, it could bring about real questions for investors about how higher rates will affect companies' abilities to continue with corporate buybacks, he said.

The Stoxx Europe 600 inched down 0.3% on Monday following declines in Asia and on Wall Street. The auto sector led losses, while markets in the U.K. were closed for a holiday.

In currencies, the euro fell 0.3% against the dollar to $1.1163. The dollar was recently up 0.4% against the yen at Yen102.291 after Bank of Japan Gov. Haruhiko Kuroda also said Saturday that the central bank would take additional monetary easing measures "without hesitation" to achieve its inflation target.

The Nikkei Stock Average rose 2.3%, as a weaker yen tends to help exporters such as auto and electronics parts makers.

Shares elsewhere in Asia fell, however, with Hong Kong's Hang Seng down 0.4% and Australia's S&P ASX 200 down 0.8%. The Shanghai Composite Index was flat.

Prices for dollar-denominated commodities dropped as the dollar strengthened. U.S. crude oil declined 1.7% to $46.84 a barrel, while gold retreated and was recently down 0.2% at $1,323 an ounce.

The yield on that 10-year Treasury note fell to 1.599% from 1.631% on Friday. Yields move inversely to prices.

U.S. economic data now faces heavy scrutiny ahead of the next FOMC meeting on Sept. 20-21. The U.S. Commerce Department issued its estimates of personal income and consumer spending for July on Monday, including the Fed's preferred measure of inflation. As measured by the personal consumption expenditures price index, prices rose 0.8% in July from a year earlier.

Later, the monthly jobs report, due Friday, could raise the chances for the Fed to act sooner rather than later.

In the short term, "strong payrolls would be very bad news for equities, " said Florian Ielpo at Swiss fund manager Unigestion. Solid data would strengthen the case for a rate rise in September and call into question a recent rally in emerging markets, which hold large quantities of dollar-denominated debt, he said.

Still, longer term, he said, "when a central bank decides to increase rates, it means the country and companies are doing very well."

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

August 29, 2016 09:58 ET (13:58 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.