MIDNIGHT REPORT

By Sinead Carew

NEW YORK (Reuters) - Wall Street advanced on Wednesday while European shares and commodities fell as investors balanced strong U.S. economic data and policy comments with fears about China's slowing economy.

The benchmark S&P 500 was up 0.7 percent in afternoon trading, off its earlier highs, helped by stronger-than-expected data on durable goods orders and comments that appeared to make a September interest rate hike less likely.

New York Fed President William Dudley said a rate hike next month seems less appropriate given the threat posed to the U.S. economy by recent global market turmoil.

Most U.S. Treasuries prices turned positive, erasing earlier losses, after Dudley's rate hike comments.

Europe's FTSEurofirst 300 index of major companies (FTEU3) fell 1.9 percent in a choppy trading day. China's key share indexes also ended down after attempts to move higher were slapped back by waves of selling several times, reflecting hopes for more government and central bank support.

The Shanghai Composite Index (SSEC) ended down 1.3 percent, its fifth straight day in the red as Beijing also dished out another round of trading bans.

"Everybody's just on guard and aware of the potential for greater volatility than we've seen in quite a while. We've seen investors dip their toes and buy high-quality names they like that they can get cheaper," said Brian Fenske, head of sales trading at ITG in New York. He added, "You could call me two hours from now and we could be down."

At 12:35 p.m., the Dow Jones industrial average (DJI) rose 122.43 points, or 0.78 percent, to 15,788.87, the S&P 500 (SPX) gained 13.14 points, or 0.7 percent, to 1,880.75 and the Nasdaq Composite (IXIC) added 29.44 points, or 0.65 percent, to 4,535.92.

The CBOE Market Volatility Index (VIX) was still elevated at 35.5, indicating significant uncertainty, though the "fear index" was well below Monday's 6-1/2 year peak of 53.3.

The dollar index (DXY), which measures the greenback against a basket of major currencies, pared its gains after the Dudley comments but was up 0.3 percent.

Despite China's struggles, Asia markets had some bright spots. Japan's Nikkei (N225) saw a 3.2 percent jump and Korea's KOSPI (KS11) showed its biggest jump in two years with a 2.6 percent increase.

Oil prices were hurt by a bigger-than-expected increase in U.S. gasoline stocks, compounding negative sentiment from worldwide equities that pushed fuel prices to 6-1/2-year lows.

Brent crude futures were last down 0.3 percent at $43.07 per barrel, while U.S. crude was down 0.9 percent at $38.97.

Copper, often considered a proxy for Chinese and global economic activity, was down 3.1 percent tumble while prices of gold , traditionally a safe-haven asset, were off 1.4 percent.

© Reuters. Dudley, president and chief executive officer of the Federal Reserve Bank of New York, attends the Economic Club of New York Leadership Excellence Award in New York

By Jonathan Spicer

NEW YORK (Reuters) - An interest rate hike next month seems less appropriate given the threat posed to the U.S. economy by recent global market turmoil, an influential Federal Reserve official said on Wednesday.

In the clearest indication yet that fears of a Chinese economic slowdown could influence U.S. monetary policy, New York Fed President William Dudley said the prospect of a September rate hike "seems less compelling" than it was only weeks ago.

Dudley, a dovish policymaker and close ally of Fed Chair Janet Yellen, however left the door open to raising rates for the first time in nearly a decade when the U.S. central bank holds a policy meeting Sept. 16-17.

The global selloff, brought on by weak Chinese economic data, threatens to crimp global growth and create financial conditions unsuitable for a initial policy tightening in the United States, he said.

"At this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago," Dudley told reporters at the New York Fed, of the policy-making Federal Open Market Committee.

But an initial rate hike "could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing and (on) international financial market developments, all of which are important to shaping the U.S. economic outlook," he said.

Market turmoil in recent days, including steep stock sell-offs in Asia, Europe and the United States, has called into question the Fed's plans to raise rates possibly as soon as next month. Investors and economists have pushed out their expectations for the Fed to move in December or next year, citing the rising dollar and falling oil prices.

The comments, which lifted the dollar and U.S. Treasury bond prices, come a day before many of the world's top central bankers gather at an annual conference in Jackson Hole, Wyoming, to which investors will look for clues on how the turmoil could rattle monetary policy plans.

Dudley's comments were unprompted and made at a briefing on the regional economy, suggesting they were a deliberate message from the broader Federal Reserve.

He said he wanted to see more U.S. economic data, and also how markets behave in coming weeks, before making a final judgment on the timing of policy tightening.

"International developments have increased the downside risks to U.S. economic growth somewhat," he said, with China's slowdown and falling commodity prices straining emerging markets and raising the possibility of slower global growth and less demand for U.S. goods and services.

The volatility has tightened financial conditions and widened credit spreads, he said, adding inflation remains "well below" the Fed's 2 percent target due to falling oil prices and the strength of the dollar, "which we expect to be transitory."

"It's important not to overreact to short-term market developments because it's unclear whether this will just be a temporary adjustment or something more persistent that will have implications for U.S. growth and the inflation outlook," Dudley said.

Only a "large and prolonged" stock market drop could potentially weigh on Americans' willingness to spend, he added.

Asked about the possibility of another round of stimulative bond-buying, Dudley said the U.S. central bank is "a long way from" that. He added that the market turmoil "is not a U.S. problem" and was sparked by "developments abroad."

While the U.S. labor market has been strong, prompting many Fed officials to consider hiking rates in September, inflation has been weak with little sign of rebounding.

JPMorgan's chief U.S. economist, Michael Feroli, wrote that the Fed's message was that, "while a September liftoff is not ruled out, the onus is on the data to remain strong and for markets to calm in order for that to happen."