By Mark DeCambre and Barbara Kollmeyer, MarketWatch

Gains in financial stocks, dollar surge suggest Wall Street is readying for a rate hike

U.S. stocks marched higher, with the Dow industrials looking at a 100-point rally, as Wall Street appeared to become inured to the prospect of an increase of benchmark interest rates in 2016.

The Dow Jones Industrial Average gained 117 points, or 0.6%, at 18,512, led by a rise in Travelers Cos. Inc. (TRV) and banks, including Goldman Sachs Group Inc. (GS). Shares of Walt Disney Co. (DIS) led blue-chip losers.

The S&P 500 index rose 12 points, or 0.6%, at 2,181. All 10 of the large-cap benchmark's 10 sectors were in positive territory. Financials, which tend to benefit in a rising interest-rate environment, gained the most among sectors, up 1%.

Meanwhile, the Nasdaq Composite Index added 21 points, or 0.4%, to trade at 5,240.

Monday's trade follows comments from the Federal Reserve Chairwoman Janet Yellen, who said last Friday in Jackson Hole, Wyo., that she is seeing signs of improvement in the U.S. economy and hinted a rate increase is in the cards in coming months. Those remarks were underscored by Fed Vice Chairman Stanley Fischer (http://www.marketwatch.com/story/feds-fischer-yellens-speech-consistent-with-possibility-of-2-interest-rate-hikes-this-year-2016-08-26) who said during a CNBC interview on the same day that Yellen's speech was "consistent" with possibly two rate hikes this year.

Stocks have prospered amid low-rate monetary policies that have fostered a multiyear bull market, but fear of an end of this accommodative environment has weighed on the equity market amid rate-hike talk.

However, the belief is that Fed actions are being driven by economic growth that is steady, if not stellar.

"We have unemployment under 5%. There is no reason why the Fed should not move [to raise interest rates]. They are so close to their collective target[s] that having rates at this low doesn't make any sense," said Jonathan Golub, chief U.S. equity strategist at RBC Capital Markets. "And whether they do so in September or December is somewhat academic," he said.

Golub said a rise in the yield of the 10-year U.S. Treasury note to 1.60% also implies that government-bond investors may be viewing the prospects of a rate increase as a positive statement about U.S. economic health. "If they thought this were a negative, yields would be falling," he said. Bond prices and yields move in the opposite direction; and government bonds tend to sell off in the face of higher rates, which make existing bonds less appealing.

Maris Ogg, president at Tower Bridge Advisors, said better-than-expected earnings and the outlook for better results in the second half of 2016 also are promising for stock investors.

"I think as you come through the second quarter...we will finally get through the earnings malaise," she said. Ogg said stocks trading at a P/E of 17 does raise some questions about lofty valuations for S&P 500 traded equities. She says companies don't need to show double-digit growth in quarterly results in coming quarters because gross domestic product, tracking 1.2% for the year, lowers the collective bar.

On the economic front, data from the key cog of the U.S. economy--consumers--delivered a dose of optimism for buying sentiment. Americans increased spending by 0.3% in July, buying more new cars and trucks. Consumer spending has proved stable even as businesses investment has been weak.

Meanwhile, a closely watched measure of inflation increased, with the so-called PCE index, the Fed's preferred gauge, showed consumer prices climbed closer to the central bank's 2% target in July.

Elsewhere in the world, global stock-market indexes have struggled on the that view rising rates in the U.S. may make the cost of borrowing more expensive, potentially slowing corporate expansion. Japanese stocks, however, bucked the downbeat trend as the yen tumbled against the dollar (http://www.marketwatch.com/story/dollar-rockets-to-two-week-high-versus-yen-as-fed-officials-signal-rate-hikes-2016-08-29) (http://www.marketwatch.com/story/dollar-rockets-to-two-week-high-versus-yen-as-fed-officials-signal-rate-hikes-2016-08-29). The yen moved triggered a 2.3% rally for the Nikkei 225 index (http://www.marketwatch.com/story/european-stocks-slump-as-yellens-rate-hike-message-sinks-in-2016-08-29).

Comments from the Fed's top dogs on Friday pushed the Dow industrials and the S&P 500 lower (http://www.marketwatch.com/story/worries-about-yellens-jackson-hole-speech-stop-dow-futures-in-their-tracks-2016-08-26), though the Nasdaq finished higher.

Read:For now, negative rates are off the table for Fed (http://www.marketwatch.com/story/for-now-negative-rates-are-off-the-table-for-fed-2016-08-28)

Mixed Fed messages? Focus will now turn to this Friday's nonfarm-payroll data for August. "Following two months of stellar jobs gains in June and July, we believe that another solid report could amplify further the case for a move this year, perhaps as early as at the next gathering," said Charalambos Pissouros, senior analyst at IronFX Global, in a note to investors.

Economic preview: U.S. job creation sticks to fast lane even as economy drops below speed limit (http://www.marketwatch.com/story/us-job-creation-sticks-to-fast-lane-even-as-economy-drops-below-speed-limit-2016-08-28)

The market is currently pricing in a 30% probability for a rate increase at the September Fed meeting and an almost 44% chance for it happening in December, according to the CME Group FedWatch tool. (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)

(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)Some have accused the Fed of sending mixed signals. "I still think one needs a Bletchley Park code book to decipher the Fed's policy. I know I am not the brightest pin in the box, but I am all over the place with Fed talk," said David Buik, market commentator at Panmure Gordon & Co, in a note to clients.

Stocks to watch:Caesars Entertainment Corp.(CZR), the parent company of the bankrupt Caesars Entertainment Operating Co., cannot shield itself (http://www.marketwatch.com/story/caesars-shares-fall-after-judge-blocks-shield-from-bondholder-suits-2016-08-2)from about $11 billion in claims from bondholders, a judge said Friday, according to Reuters. Shares tanked 16% on Monday.

Shares of Mylan NV(MYL) slipped 0.4%, after climbing in early trade, as the drugmaker said it would launch a cheaper, generic alternative to EpiPen (http://www.marketwatch.com/story/mylan-to-launch-cheaper-generic-epipen-alternative-2016-08-29-61035653) after running into stark criticism for dramatically raising the price of the lifesaving drug.

Herbalife Ltd. (HLF) shares rose 2.3% on Monday after reports indicated that the nutritional supplement company's largest stakeholder, Carl Icahn, bought 2 million additional shares of the company on Friday.

Other markets: Gold prices drifted south on Monday, picking up from last week's losses, as the dollar gained. While prospects for higher rates can boost the dollar, they depress the value of precious metals that are priced in the currency.

Crude-oil prices slumped 1.5% (http://www.marketwatch.com/story/oil-prices-pull-back-as-investors-lock-in-profits-2016-08-29), also pressured by the stronger dollar.

--Sara Sjolin contributed to this article

(END) Dow Jones Newswires

August 29, 2016 12:21 ET (16:21 GMT)