US STOCKS-Wall Street recovers from sharp fall after Trump denies plans to fire Powell

By Pranav Kashyap and Nikhil Sharma

July 16 (Reuters) - U.S. stocks clawed back into positive territory on Wednesday after President Donald Trump swiftly denied reports of a Federal Reserve shakeup, calling it "highly unlikely" he would fire Chair Jerome Powell - just moments after reports suggested otherwise.

The main U.S. stock indexes fell sharply earlier, the dollar plunged and Treasury yields rose after Bloomberg News reported the possibility of replacing Powell, citing an unidentified White House official.

Separately, Reuters News reported, citing a source, that Trump is open to the idea of firing Powell.

Trump was quick to deny the reports, even as he unleashed a new barrage of criticism against the Fed chair for not cutting interest rates.

"Any rhetoric between and Jerome Powell and Donald Trump is noise to me. We aren't making any portfolio considerations or changes," said David Wagner, head of equities at Aptus Capital Advisors LLC.

"The market understands that the new Fed chair tends to be announced a year ahead of time which should be upcoming in the next few months. There is no reason for Trump to negate the arm's-length distance between the Fed and the executive branch in the wake of a new Fed Chair being named in the next month or two."

The benchmark S&P 500 fell as much as 1%, while the Nasdaq dropped as much as 1.1%, following the reports, but clawed back from those losses following Trump's comments.

At 1:03 p.m. ET, the Dow Jones Industrial Average .DJI rose 100.89 points, or 0.23%, to 44,124.18, the S&P 500 .SPX gained 7.89 points, or 0.13%, to 6,251.65 and the Nasdaq Composite .IXIC gained 18.29 points, or 0.09%, to 20,696.09.

The CBOE Volatility Index .VIX, Wall Street's "fear gauge," hit an over a three-week high earlier but eased from those levels.

Trump has repeatedly criticized Federal Reserve monetary policy in recent months, angry over the central bank's refusal to cut interest rates. Fed officials have resisted cutting rates until there is clarity on whether Trump's tariffs on U.S. trading partners reignite inflation.

A recent Supreme Court ruling suggests no change to the long-held understanding that the law prohibits a president from firing a Fed chair over a policy difference.

Before the Bloomberg report, the session was rather choppy as investors found themselves on edge after a mixed bag of inflation data muddied the economic outlook. Producer prices flatlined in June, as tariff-driven goods costs were balanced out by weaker service prices.

Just a day earlier, unexpectedly strong consumer inflation had already dented hopes for deeper Federal Reserve rate cuts, with Trump's tariffs partly fueling the uptick in prices.

Money markets pricing show traders are betting on 47 basis points of Fed easing by year-end, with a July rate cut off the table and the odds of a September move increased to 60%

Meanwhile, Wall Street's big banks rode a wave of market volatility to stronger profits in the second quarter.

Goldman Sachs GS.N inched 0.2% higher after notching a 22% earnings surge, while Bank of America's BAC.N profits beat estimates also fueled by gains at its desks. Morgan Stanley MS.N joined the trend with a profit boost from wild market swings, though its shares slipped 2.6%.

Trade tensions also remained in focus after Trump announced a 19% tariff on Indonesian goods as part of a new deal, one of several rushed agreements ahead of an August 1 deadline for broader tariff hikes. Meanwhile, the European Union was preparing retaliatory measures should talks with Washington falter.

Meanwhile, Trump said that there may be another deal with India, while EU trade chief Maros Sefcovic headed to Washington for tariff talks.

Investors lately have shown resilience in recent weeks, largely ignoring Trump's ongoing tariff rhetoric and instead focusing on potential trade agreements that could de-escalate the global trade conflict.

Advancing issues outnumbered decliners by a 1.06-to-1 ratio on the NYSE and by a 1.34-to-1 ratio on the Nasdaq.

The S&P 500 posted seven new 52-week highs and six new lows, while the Nasdaq Composite recorded 47 new highs and 60 new lows.