By Bansari Mayur Kamdar and Aniruddha Ghosh
(Reuters) - The S&P 500 was trading at its highest level in more than three months on Thursday, extending a rally from the previous session as fresh evidence of cooling inflation further cemented hopes of a smaller rise in interest rates.
Growth and technology stocks rebounded after data showed U.S. producer prices unexpectedly fell in July bolstering the chance of a 50-basis point hike by the Federal Reserve in September instead of 75 basis points.
Meanwhile, the number of Americans filing new claims for unemployment benefits rose for the second straight week, indicating further softening in the labor market despite tight conditions.
The indexes had sharply rallied on Wednesday following a softer-than-expected rise in consumer prices. The gains came even as policymakers left no doubt they will tighten monetary policy until price pressures are fully broken.
"Rates still have to move higher even though in the very short run the market is reacting positively... Inflation is a bit more moderate, but inflation has not disappeared as a problem as yet," said Chuck Lieberman, chief investment officer at Advisors Capital Management.
Traders are now pricing in a more than 67.5% chance that the Fed will hike interest rate by 50 basis points. [IRPR]
Ten of the 11 major S&P 500 indexes advanced, with financials and communication services adding more than 1%, while energy stocks tracked gains in crude prices.
The Nasdaq was more than 20% above its June low, but still short of its peak in November to confirm a new bull market.
Despite its recent rebound, the tech-heavy index is down 17% so far this year as fears of an aggressive monetary policy sapped appetite for equities, particularly high-growth stocks.
The U.S. central bank has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.
At 9:44 a.m. ET, the Dow Jones Industrial Average was up 224.28 points, or 0.67%, at 33,533.79, the S&P 500 was up 28.19 points, or 0.67%, at 4,238.43, and the Nasdaq Composite was up 91.93 points, or 0.72%, at 12,946.74.
Banks looked set to extend their climb, with Bank of America (NYSE:BAC) up 2.0%.
"People are projecting that there will be much more lending going forward if the economy does fine and inflation will decline," said Hugh Anderson, managing director at Hightower Advisors.
High-growth stocks such as Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN), whose valuations are vulnerable to rising bond yields, advanced as U.S. Treasury yields continued to pull back. [US/]
In earnings-driven news, Walt Disney (NYSE:DIS) jumped 8.9% as the media giant edged past rival Netflix Inc (NASDAQ:NFLX) with 221 million streaming customers and announced it will increase prices for customers who want to watch Disney+ or Hulu without commercials.
Advancing issues outnumbered decliners by a 4.89-to-1 ratio on the NYSE and by a 3.01-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and 29 new lows, while the Nasdaq recorded 39 new highs and eight new lows.