US close: Stocks hit record highs as investors eye second rate hike this year

US stocks ended higher on Tuesday with the Dow and S&P 500 at records as technology stocks rebounded from the recent selloff ahead of an expected rate hike by the Federal Reserve.

The Dow Jones Industrial Average closed up 0.4% to 21,328.47, the S&P 500 rose 0.5% to 2,440.35 and the tech-heavy Nasdaq finished 0.7% higher at 6,220.37 as technology stocks - which have rallied sharply in the last 12 months - recovered from their recent loses. Facebook, Apple and Microsoft all ended in the black.

Tuesday marked the first day of the Fed’s two-day rate setting meeting, with a second rate hike for the year already largely priced in.

Eric Lascelles, chief economist at RBC Global Asset Management, said: "The Fed’s long-awaited June decision beckons. There, markets assign a 90% likelihood to another 25bps rate hike and this would be the second rate increase this year. This expectation seems about right given recent Fed statements and the reasonable health of the US economy.

"We would budget for a ‘dovish’ hike, however, as the Fed may be wary about over-promising future actions given a bit less economic strength relative to earlier in the year, slightly lower inflation and the absence of long-awaited fiscal stimulus. There is also an ongoing debate internally about the appropriate timing and pace of any effort to shrink the central bank’s balance sheet. This is unlikely to be resolved at the June meeting."

The dollar was down 0.7% versus the pound at the time of the US markets close, as sterling was lifted by data from the Office for National Statistics showing UK inflation surged faster than expected to a new four-year high in May.

In economic news, US producer prices were flat in May versus April, while the year-on-year rate dipped from a 2.5% clip to 2.4%, according to the Bureau of Labor Statistics. Economists had projected no change in prices versus April and a 2.3% rate of increase year-on-year.

In corporate news, Cheesecake Factory shares tumbled nearly 10% after it warned over a drop in comparable store sales.