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S&P 500, Nasdaq hit fresh 1-yr highs as inflation data boosts rate pause hopes

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By Shristi Achar A and Sruthi Shankar

(Reuters) – The S&P 500 and Nasdaq rose to fresh one-year highs on Tuesday after data showed consumer prices rose modestly in May, cementing bets that the Federal Reserve could skip raising interest rates at the end of its policy meeting on Wednesday.

Consumer price index (CPI) rose 0.1% last month compared with a 0.4% jump in April, with core inflation remaining unchanged at 0.4%, according to the U.S. Labor Department report.

On a year-on-year basis, headline inflation increased by a lower-than-estimated 4.0%, reflecting declines in the cost of energy products and services, including gasoline and electricity.

“Today’s fall in the rate of inflation is likely to be welcomed by investors, but it remains stubbornly above the Fed’s 2% target,” said Richard Flynn, managing director of Charles Schwab UK.

“The good news is that the ‘stickiness’ in inflation is now confined to a smaller number of categories compared to earlier in the year.”

Following the data, traders fully priced in that the U.S. central bank will hold interest rates at the 5%-5.25% range on Wednesday, while expecting a 60% chance of a 25-basis-point hike in July, according to the CME Fedwatch tool.

The S&P 500 and the Nasdaq have hit fresh highs for the year in the past few sessions, lifted by market heavyweights including Amazon.com, Apple and Tesla.

The benchmark S&P 500 has risen 21% from its October 2022 lows, heralding a bull market according to some investors.

The rally, which has largely been underpinned by gains in megacap stocks has broadened recently to include economy-linked sectors such as energy and materials.

The two sectors were up 1.6% and 1.7%, respectively, in morning trade, as commodity prices including those of oil and copper climbed. [O/R] [MET/L]

At 9:55 a.m. ET, the Dow Jones Industrial Average was up 155.58 points, or 0.46%, at 34,221.91, the S&P 500 was up 24.29 points, or 0.56%, at 4,363.22, and the Nasdaq Composite was up 79.69 points, or 0.59%, at 13,541.61.

Oracle jumped 4.3% to hit a fresh all-time high on upbeat quarterly revenue and forecast, while Intel gained 1.1% on talks with SoftBank Group Corp’s Arm to be an anchor investor in its initial public offering.

Bunge Ltd inched up 0.3% after the U.S. grains merchant and Glencore-backed Viterra said they were merging to create an agricultural trading giant worth about $34 billion, including debt.

U.S.-listed shares of Chinese companies including JD.com , Alibaba Group, Baidu and Netease rose between 2.9% and 4.9% after China’s central bank lowered its short-term lending rate for the first time in 10 months.

Advancing issues outnumbered decliners by a 4.52-to-1 ratio on the NYSE and a 2.75-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and no new low, while the Nasdaq recorded 86 new highs and 19 new lows.

(Reporting by Shristi Achar A and Sruthi Shankar in Bengaluru; Editing by Vinay Dwivedi)

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