By Sinéad Carew and Shashwat Chauhan
(Reuters) -Wall Street's main indexes closed higher on Thursday after the latest inflation data reinforced expectations for a 25-basis point rate cut by the Federal Reserve, while Moderna's weak revenue forecast made it the S&P 500's biggest percentage loser.
The producer price index (PPI) for final demand rose 0.2% in August, compared with estimates for 0.1% growth. The core number, which strips out volatile food and energy prices, rose 0.3%, higher than the 0.2% forecast.
Separately, initial claims for state unemployment benefits stood at 230,000 for the week ended Sept. 7, in line with estimates.
"This week's data pretty much confirms that we're not likely to have a hard landing and that we're in a soft landing," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
"As long as investors see that interest rate cut and a path forward for interest rate cuts they're excited about prospects in the stock market and especially the growthier sections."
A string of weakening employment and economic growth data in the past few weeks had fueled some bets on a larger-than-usual 50-bps interest rate cut by the Fed, but these bets had faded after Wednesday's inflation report.
While on Thursday the bets fluctuated, traders were still betting on a 69% chance the U.S. central bank cuts rates by just 25 bps when it meets on Sept. 17-18, CME's FedWatch Tool showed. It would be the first rate cut since March 2020.
The Dow Jones Industrial Average rose 235.06 points, or 0.58%, to 41,096.77, the S&P 500 gained 41.63 points, or 0.75%, to 5,595.76 and the Nasdaq Composite gained 174.15 points, or 1.00%, to 17,569.68.
The more economically sensitive small-cap Russell 2000 outperformed with a 1.2% gain.
"There's probably some bargain hunting. Small caps is an area that's lagged all year and they'll tend to be rate sensitive so if rates are coming down that might have a decent impact," said Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana.
All of the S&P 500's 11 industry sectors ended higher, led by communication services, which added 2%.
The sector's biggest percentage gainer was Warner Bros Discovery, which advanced 10.4% after it announced with Charter Communications (NASDAQ:CHTR) that the cable company would provide customers an ad-supported version of Warner's streaming services Max and Discovery+. Charter shares rose 3.6%.
Moderna finished down 12.4% after hitting its lowest level since November. The vaccine maker had forecast sales of $2.5 billion to $3.5 billion next year, below analysts' estimates.
In more bullish news, Kroger (NYSE:KR) shares rallied 7.2% after the supermarket chain beat second-quarter estimates and raised the lower end of its annual sales forecast.
Shares of gold miners jumped as spot gold hit a record high, with the Arca Gold BUGS index rising 5.8%.
Advancing issues outnumbered decliners by a 3.45-to-1 ratio on the NYSE where there were 405 new highs and 46 new lows.
On the Nasdaq, 2,665 stocks rose and 1,543 fell as advancing issues outnumbered decliners by a 1.73-to-1 ratio. The S&P 500 posted 37 new 52-week highs and no new lows while the Nasdaq Composite recorded 73 new highs and 76 new lows.
On U.S. exchanges 10.58 billion shares changed hands compared with the 10.82 billion moving average for the last 20 sessions.