By Johann M Cherian and Bansari Mayur Kamdar

(Reuters) – Wall Street rallied on Wednesday, led by gains in rate-sensitive megacap growth stocks after data showed inflation cooled further in June and boosted hopes that the Federal Reserve was nearing the end of its monetary tightening cycle.

   U.S. consumer prices rose modestly in June and logged their smallest annual increase in more than two years as inflation continued to subside.

   The much awaited U.S. Labor Department report showed growth in core consumer prices, which excludes food and energy, eased to 4.8% from 5.3% in May on an annual basis. Economists had expected a 5% rise.      

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

   An overwhelming majority of traders continue to expect the Fed to raise the benchmark rate to the range of 5.25%-5.5% later this month.

But market participants were now betting with a 26% probability that the central bank would lift short-term borrowing costs by 25 basis points in November this year, compared with a 34% probability before the data was reported.

“It means that even though the Federal Reserve has probably already talked itself into a corner needing to hike at the July meeting it may be the last one for this hiking cycle,” said Brian Jacobsen, chief economist at Annex Wealth Management.

At 11:30 a.m. ET, the Dow Jones Industrial Average was up 235.19 points, or 0.69%, at 34,496.61, the S&P 500 was up 40.61 points, or 0.91%, at 4,479.87, and the Nasdaq Composite was up 163.22 points, or 1.19%, at 13,923.92.

The Russell 2000 index, which houses smaller cap names, rose 0.9% to its highest since February 2023.

   Megacap growth and technology stocks such as Microsoft, and Tesla added between 1.8% and 1.3%.

   All 11 of the major S&P 500 sectors advanced, led by gains in communication services that added 1.5%.

   The CBOE Market Volatility Index, Wall Street’s fear gauge, hit over a one-week low at 13.64.

   Nvidia added 2.7% 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.

VMware advanced 2.3% after Broadcom secured EU’s antitrust approval for its $61 billion proposed acquisition of the cloud computing firm.

U.S.-listed shares of Chinese firms Alibaba Group and Bilibili climbed 3% and 7.5%, respectively on more signs that Beijing was easing its crackdown on the technology sector.

The S&P 500 banks index rose 1.7% ahead of second-quarter earnings season, with Wall Street lenders expected to report higher profits.

Advancing issues outnumbered decliners by a 4.94-to-1 ratio on the NYSE and by a 2.53-to-1 ratio on the Nasdaq.

The S&P index recorded 62 new 52-week highs and two new lows, while the Nasdaq recorded 110 new highs and 28 new lows.

(Reporting by Johann M Cherian and Bansari Mayur Kamdar in Bengaluru; Additional Reporting by Shashwat Chauhan; Editing by Shinjini Ganguli)

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