US STOCKS-S&P 500 gains on Fed rate cut expectations, offsetting Microsoft slip

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Indexes up: Dow 0.54%, S&P 500 0.22%, Nasdaq 0.09%

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Investors assess ADP employment and ISM services reports

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Microsoft (MSFT) lowers AI software sales quota - The Information

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Small caps outperform broader Wall Street

(Updates to mid-session trading)

By Johann M Cherian and Pranav Kashyap

Dec 3 (Reuters) - Wall Street's benchmark S&P 500 edged higher in choppy trading on Wednesday, as a set of economic data bolstered expectations for an interest rate cut by the Federal Reserve, while a slide in Microsoft's (MSFT) shares kept a lid on gains.

Microsoft (MSFT) fell as much as 3% after a report said the tech giant has cut AI software sales quotas after many sales staff missed their targets in the fiscal year that ended in June.

The shares cut initial losses and were last down 1.8% after CNBC said the company denied the report.

The broader tech sector was down 0.4%, the biggest decliner on the S&P 500, and chip companies such as Nvidia (NVDA) slipped 0.3%, while Broadcom (AVGO) lost 1.6%.

"Anything that puts a dent in the image of Microsoft (MSFT) and its leadership position in AI certainly is going to have an impact," said Art Hogan, chief market strategist at B. Riley Wealth.

Most of the other 10 S&P 500 sectors traded higher, with energy up 1.6% on higher crude prices.

Meanwhile, U.S. services activity held steady in November, a survey showed. For investors, the focus was on prices paid by services firms, which eased only slightly from the previous month ahead of Friday's personal consumption expenditures report, the Fed's preferred inflation gauge.

Separately, the ADP National Employment Report showed U.S. private payrolls unexpectedly declined in November. With official employment reports for October and November due only after next week's decision, traders are leaning more than usual on private-sector data.

Traders' expectations for a 25-basis-point cut at next week's Fed meeting rose to 89% after the data, up from around 87% earlier in the day, CME's FedWatch Tool showed.

Investors weighed a report that the Trump administration has abruptly canceled interviews with finalists for the Fed chair role, which firmed up the view that Kevin Hassett - seen as a U.S. interest rate cutter - will replace Jerome Powell next May.

At 11:33 a.m. ET, the Dow Jones Industrial Average rose 254.03 points, or 0.54%, to 47,728.49, the S&P 500 gained 15.11 points, or 0.22%, to 6,844.54 and the Nasdaq Composite gained 20.23 points, or 0.09%, to 23,434.06.

Rate cut expectations also lifted small caps, with the Russell 2000 index gaining 1.2%, following last week's 5.5% surge - its strongest weekly performance in more than a year.

"We expect small caps to outperform in 2026, with earnings to drive returns," said Jill Carey Hall, equity and quant strategist at BofA Securities, adding that Fed rate cuts and a strong capex cycle would be strong drivers.

On Wednesday, Marvell Technology jumped 4.5% after the chipmaker said it will buy semiconductor startup Celestial AI in a deal worth $3.25 billion.

Microchip Technology rose 8.3% after the chipmaker raised its expectations for third-quarter results.

American Eagle Outfitters gained 15.4% after raising its annual comparable sales forecast, betting on strong demand during the holiday season.

Advancing issues outnumbered decliners by a 2.15-to-1 ratio on the NYSE, and by a 2.01-to-1 ratio on the Nasdaq.

The S&P 500 posted 17 new 52-week highs and one new low, while the Nasdaq Composite recorded 63 new highs and 80 new lows. (Reporting by Johann M Cherian and Pranav Kashyap in Bengaluru; Editing by Tasim Zahid and Shinjini Ganguli)