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NEW YORK: The S&P 500 and Nasdaq rose to fresh one-year highs on Tuesday after data showed consumer prices rose modestly in May, boosting hopes that the Federal Reserve could skip raising interest rates at the end of its policy meeting on Wednesday.

The US Labor Department report showed consumer price index(CPI) rose 0.1% last month compared with a 0.4% jump in April, with core inflation remaining unchanged at 0.4%.

On a year-on-year basis, headline inflation increased by a lower-than-estimated 4.0%, reflecting declines in the cost of energy products and services, including gasoline and electricity.

“The data basically came within consensus estimates, except that core inflation remained stubbornly high,” said Quincy Krosby, chief global strategist at LPL Financial.

“For tomorrow, the market is not expecting a rate hike and hoping that when we come to July 26, core inflation will come down in a more material way.” Traders have priced in a 92% chance that the US central bank will hold interest rates at the 5%-5.25% range on Wednesday but see a 60% chance of another 25-basis-point hike in July, according to the CME Fedwatch tool.

The S&P 500 and Nasdaq have hit fresh highs for the year in the past few sessions, lifted by market heavyweights such as Amazon.com, Apple and Tesla.

The benchmark S&P 500 has risen 21% from its October 2022 lows, heralding a bull market according to some investors.

The rally, which has largely been driven by gains in megacap stocks, has broadened recently to include economy-linked sectors such as energy and materials as well as small-cap stocks.

The two sectors were up 1.5% and 2.2%, respectively, as commodity prices including those of oil and copper climbed against a falling dollar, also underpinned by hopes of more support for China’s slowing economy.

The small-cap Russell 2000 index jumped 1.4% to hit a fresh three-month high.

“Having the Russell 2000 compliment the move in the Nasdaq is helpful to push back concerns that this is still a very narrow led market,” Krosby said.

US-listed shares of Chinese companies including JD.com , Alibaba Group, Baidu and Netease rose, tracking gains in Shanghai markets, after China’s central bank lowered its short-term lending rate for the first time in 10 months.

At 12:49 p.m. ET, the Dow Jones Industrial Average was up 171.66 points, or 0.50%, at 34,237.99, the S&P 500 was up 30.07 points, or 0.69%, at 4,369.00, and the Nasdaq Composite was up 97.95 points, or 0.73%, at 13,559.87.

Oracle rose 1%, having hit a record high earlier on upbeat quarterly revenue and forecast, while Intel gained 1.8% on talks with SoftBank Group Corp’s Arm to be an anchor investor in its initial public offering.

Bunge Ltd added 1.8% after the US grains merchant and Glencore-backed Viterra said they were merging to create an agricultural trading giant worth about $34 billion, including debt.

Advancing issues outnumbered decliners by a 3.37-to-1 ratio on the NYSE and 2.41-to-1 ratio on the Nasdaq.

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