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NEW YORK: The tech-heavy Nasdaq surged nearly 3% on Wednesday, leading Wall Street’s main indexes higher, as upbeat quarterly reports from Microsoft and Alphabet lifted sentiment ahead of a key US interest rate decision later in the day.

Investors widely expect the US central bank to increase interest rates by another 75 basis points later on Wednesday, with focus likely to shift to how deeply signs of an economic slowdown have registered with its policymakers.

Money market traders were even betting on a one-in-four chance that the Fed would surprise markets with a larger 1-percentage-point increase, as per CME Group’s Fedwatch tool.

The decision is due at 2:00 pm ET (1800 GMT) followed by a news conference by the Federal Reserve Chair Jerome Powell half an hour later, where he is likely to elaborate on how the central bank views the recent economic environment.

“There’s a balancing act that has to take place, if they do too much or too little, it’s going to hurt, so they’re in a tough position,” Andre Bakhos, managing director at New Vines Capital said.

“The key is how it is said and how they give color about what’s out there in the world, from the Fed’s eyes.” Microsoft Corp climbed 5% after it forecast double-digit growth in revenue this fiscal year on demand for cloud computing services.

Alphabet Inc added 7.3% as better-than-expected sales of Google search ads eased worries about a slowing ad market.

The S&P 500 communication services index added 4.3%, rising for the first time in five days and led sectoral gains. Tech stocks rose 3%.

The results sparked a rally in high-growth stocks.

Meta Platforms Inc added 5.5% ahead of its quarterly report after markets close, while shares of Apple Inc rose 1.7% and those of Amazon.com Inc gained 4.4% before their results on Thursday.

Megacap growth stocks have been hammered this year as the Federal Reserve raised interest rates aggressively to tame decades-high inflation. Future cash flows on which valuation of these companies rests are discounted heavily when rates rise.

At 12:37 p.m. ET, the Dow Jones Industrial Average was up 123.91 points, or 0.39%, at 31,885.45, the S&P 500 was up 57.50 points, or 1.47%, at 3,978.55, and the Nasdaq Composite was up 314.00 points, or 2.72%, at 11,876.57.

PayPal Holdings Inc jumped 11.4% after a report said activist investor Elliott Investment Management was building a stake in the fintech giant.

T-Mobile US Inc added 4.1% after it raised its subscriber growth forecast for the second time this year and exceeded quarterly profit expectations.

Advancing issues outnumbered decliners by a 2.77-to-1 ratio on the NYSE and by a 2.11-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 30 new lows, while the Nasdaq recorded 39 new highs and 78 new lows.

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