By Shristi Achar A and Noel Randewich
(Reuters) - The S&P 500 and Nasdaq closed higher on Wednesday as fresh economic data signaled a cooling U.S. economy, reinforcing expectations the Federal Reserve will pause rate hikes in September.
The S&P 500 index reached its highest in nearly three weeks after an ADP National Employment report showed private payrolls increased by 177,000 jobs in August, compared with estimates of 195,000, suggesting a softening labor market.
The Nasdaq logged its highest close since Aug. 1.
Fresh gross domestic product numbers showed the U.S. economy expanded 2.1% in the second quarter, slower than a preliminary estimate of a 2.4% growth.
"Somewhat softer employment data is easing investor concerns for future Federal Reserve interest rate hikes," said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management.
The prospect of a "softer landing" for the U.S. economy also supported demand for growth stocks and other riskier assets at the expense of defensive stocks, Haworth added.
Nvidia rose 1% to close at its highest ever. It was Wall Street's most traded company, with $35.5 billion worth of shares exchanged during the session.
Mastercard and Visa gained around 0.5% each after a report said the companies were preparing to raise credit card fees.
HP Inc tumbled 6.6% after the personal computer maker trimmed its annual forecast due to slowing demand.
Traders' bets on the Fed leaving interest rates unchanged in September stood at nearly 89%, up from 86% the day before, while bets of a pause in November rose to 54% from about 52%, the CME Group's FedWatch tool showed.
U.S. Treasury yields slipped to a near three-week low, with the 10-year yield last at 4.12%.
Volume on U.S. exchanges was light, with 9.0 billion shares traded, compared to an average of 10.6 billion shares over the previous 20 sessions.
The S&P 500 climbed 0.38% to end at 4,514.87 points.
The Nasdaq gained 0.54% at 14,019.31 points, while Dow Jones Industrial Average rose 0.11% to 34,890.24 points.
Of the 11 S&P 500 sector indexes, nine rose, led by information technology, up 0.83%, followed by a 0.51% gain in energy.
Investors are now looking to the personal consumption expenditures price index, the Fed's preferred measure of inflation, and non-farm payroll numbers due on Thursday and Friday, respectively, for more clues on interest rates.
Trading activity has been light this week ahead of Monday's U.S. Labor Day holiday.
Brown-Forman fell 4% after the Jack Daniels whiskey maker missed its first-quarter sales and profit estimates.
Advancing issues outnumbered falling ones within the S&P 500 by a 1.9-to-one ratio.
The S&P 500 posted 24 new highs and one new low; the Nasdaq recorded 70 new highs and 76 new lows.
(Reporting by Shristi Achar A and Amruta Khandekar in Bengaluru and by Noel Randewich in Oakland, Calif; Editing by Savio D'Souza, Vinay Dwivedi and Richard Chang)