May 15 (Reuters) - The benchmark S&P 500 (.SPX), opens new tab and the Nasdaq (.IXIC), opens new tab touched record highs on Wednesday after a lower-than-expected increase in a key inflation metric buttressed hopes that the Federal Reserve will cut interest rates this year.
The blue-chip Dow (.DJI), opens new tab was set to breach the 40,000-mark for the first time, while the two other major indexes surpassed all-time peaks hit in March. Tepid U.S. consumer prices data for April led traders to raise bets that the Fed will cut its policy rate in September and again in December.
"The first downside surprise in inflation since the turn of the year will be a relief to the niggling concerns that inflation was starting to trend upwards again," said Seema Shah, chief global strategist at Principal Asset Management.
"It will inevitably be well received by the market, given that it puts 2024 Fed cuts back on the table."
Separately, U.S. retail sales were unexpectedly flat in April as higher gasoline prices pulled expenditure away from other goods, indicating that consumer spending was losing momentum.
At 11:20 a.m. ET, the Dow Jones Industrial Average (.DJI), opens new tab was up 261.81 points, or 0.66%, at 39,819.92, the S&P 500 (.SPX), opens new tab was up 44.95 points, or 0.86%, at 5,291.63, and the Nasdaq Composite (.IXIC), opens new tab was up 160.59 points, or 0.97%, at 16,671.77.
Equities built on Tuesday's gains, when Fed Chair Jerome Powell's assessment of U.S. growth and inflation reassured investors after hotter-than-expected producer prices for April.
Stocks have rallied so far this year on better-than-expected earnings for the first quarter and expectations that the Fed will be able to cool inflation without damaging growth and eventually transition to cutting interest rates.
Rate-sensitive real estate (.SPLRCR), opens new tab and technology stocks (.SPLRCT), opens new tab outpaced other sectoral indexes with a 1.6% gain each.
Most megacap growth and technology stocks also climbed, with Nvidia (NVDA.O), opens new tab leading the gains.
Meanwhile, retail investor darling GameStop (GME.N), opens new tab fell 31.7%, snapping this week's sharp rally driven by "Roaring Kitty" Keith Gill - a central figure behind the 2021 meme stock frenzy - posting on social media platform X.
Other meme stocks such as AMC Entertainment (AMC.N), opens new tab and Koss Corp (KOSS.O), opens new tab dropped 24% each.
Advancing issues outnumbered decliners by a 3.07-to-1 ratio on the NYSE and by a 1.76-to-1 ratio on the Nasdaq.
The S&P index recorded 64 new 52-week highs and no new lows, while the Nasdaq recorded 101 new highs and 47 new lows.
Reporting by Bansari Mayur Kamdar and Shristi Achar A in Bengaluru; Additional reporting by Ankika Biswas; Editing by Sriraj Kalluvila, Devika Syamnath and Pooja Desai
