By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. stocks ended solidly higher on Wednesday, led by a gain of more than 1% in the Nasdaq after a report showed inflation subsided further with consumer prices registering their smallest annual increase in more than two years.

The data underscored expectations the Federal Reserve may let interest rates stand after one more 25 basis point hike expected at its July policy meeting.

Shares of big tech-related companies, which tend to be sensitive to higher interest rates, gave the S&P 500 its biggest boost.

In the 12 months through June, the CPI advanced 3.0%. That was the smallest year-on-year increase since March 2021 and followed a 4.0% rise in May.

While indexes ended off their highs of the session, “bulls remain firmly in charge,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“Clearly the CPI data we got was what the bulls wanted to see, and those that have been sitting on the sidelines hoping for a pullback continue to get frustrated.”

According to preliminary data, the S&P 500 gained 33.40 points, or 0.75%, to end at 4,472.66 points, while the Nasdaq Composite gained 160.30 points, or 1.16%, to 13,921.00. The Dow Jones Industrial Average rose 92.17 points, or 0.27%, to 34,353.59.

Investors have been weighing how much longer the Fed will need to raise rates to curb inflation.     

The CBOE Market Volatility Index, Wall Street’s fear gauge, eased.

The Labor Department report also showed the smallest monthly gain in underlying consumer prices since August 2021.

“The market is sensing the Fed getting closer and closer to that final one and done,” said Quincy Krosby, chief global strategist at LPL Financial in North Carolina.

The S&P 500 banks index rose. Reports from JPMorgan Chase and other major U.S. banks Friday unofficially begin the second-quarter earnings season.

   Nvidia shares were up after the Financial Times reported that chip designer Arm is in talks to bring the megacap firm in as an anchor investor ahead of its planned listing.

U.S.-listed shares of Chinese firms Alibaba Group and Bilibili also climbed amid hopes that China was easing its crackdown on the technology sector.

(Reporting by Caroline Valetkevitch; additional reporting by Johann M Cherian and Bansari Mayur Kamdar in Bengaluru; Additional Reporting by Shashwat Chauhan; Editing by Shinjini Ganguli, Nick Zieminski and David Gregorio)

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