By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. stocks were solidly higher in afternoon trading Wednesday, led by a more than 1% gain in the Nasdaq after a report showed U.S. consumer prices registered 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 the conclusion of 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, as inflation subsided further.

“People were positioned for the most part on the long side expecting a cool CPI number, and that’s exactly what we got,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“The market rallied hard in the first hour and a half, and has come off a bit. It’s not surprising to see us off the highs given hedge funds have probably been trimming long positions,” he said. “Nonetheless, bulls remain firmly in charge of this market.”

The Dow Jones Industrial Average rose 118.16 points, or 0.34%, to 34,379.58, the S&P 500 gained 36.98 points, or 0.83%, to 4,476.24 and the Nasdaq Composite added 167.64 points, or 1.22%, to 13,928.34.

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, was down.

The S&P 500 banks index rose 1.3%. Reports from JPMorgan Chase and other major U.S. banks Friday unofficially begin the second-quarter earnings season.

   Nvidia added 3.5% 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 climbed 3% and 8.3%, respectively amid hopes that China was easing its crackdown on the technology sector.

Advancing issues outnumbered declining ones on the NYSE by a 4.19-to-1 ratio; on Nasdaq, a 2.23-to-1 ratio favored advancers.

The S&P 500 posted 64 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 120 new highs and 36 new lows.

(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 and Nick Zieminski)

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