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Financial Markets                      06/12 15:56

   

   NEW YORK (AP) -- U.S. stocks climbed Wednesday following a surprisingly 
encouraging update on inflation and a reassurance that the Federal Reserve 
still sees a cut to interest rates as likely this year.

   The S&P 500 added 0.9% to its all-time high set a day earlier. The Nasdaq 
composite also built on its own record and jumped 1.5%, while the Dow Jones 
Industrial Average lagged the market with a dip of 35 points, or 0.1%.

   The action was even stronger in the bond market, where Treasury yields 
dropped after the inflation report showed U.S. consumers paid prices that were 
3.3% higher for food, insurance and everything else last month from a year 
earlier. Economists had been expecting to see the inflation rate stuck at 3.4%.

   For Wall Street, a slowdown in inflation not only helps U.S. households 
struggling to keep up with fast-rising prices, it also opens the door for the 
Federal Reserve to cut its main interest rate. Such a move would ease pressure 
on the economy and give a boost to investment prices.

   Everything from bitcoin to gold to copper rallied after the inflation data 
raised expectations for coming cuts to interest rates. A measure of nervousness 
among investors in U.S. stocks also eased.

   For its part, the Federal Reserve kept its main interest rate steady on 
Wednesday following its latest policy meeting.

   Policymakers welcomed the latest update on inflation, but "we'll need to see 
more good data to bolster our confidence," Fed Chair Jerome Powell said. He 
repeated the Fed's mantra that it needs an accumulation of data showing 
inflation is sustainably heading toward its 2% target before it lowers the 
federal funds rate, which is at the highest level in more than two decades.

   "We'll have to see where the data lights the way," he said, reiterating the 
Fed's commitment to moving based on where incoming reports steer it.

   The Fed is in a tight spot with a lot on the line. Cutting interest rates 
too soon or by too much could allow inflation to reaccelerate, while waiting 
too long would put unnecessary pain on the economy.

   "It's a consequential decision for the economy, and you want to get it 
right," Powell said.

   The Fed indicated Wednesday that most of its policymakers are forecasting 
one or two cuts to interest rates at some point this year. They also raised 
their forecasts for the number of cuts in 2025.

   Fed officials trimmed their forecast for the number of cuts in 2024 down 
from a median of three after progress seemed to stall early this year on 
bringing inflation lower. Such a fall-off was widely expected, and traders are 
still largely betting on the first of potentially two cuts to rates in 2024 
coming in September, according to data from CME Group.

   That had areas of the stock market that tend to benefit most from lower 
interest rates doing the best.

   Smaller companies that need to borrow to grow and can therefore feel the 
pinch of higher interest rates more than larger rivals led the market. The 
smaller stocks in the Russell 2000 index jumped 1.6%.

   Lower interest rates could also mean easier mortgage rates and inject energy 
into the housing market. Homebuilder D.R. Horton climbed 3%. Builders 
FirstSource, which sells vinyl windows, custom millwork and other building 
materials, jumped 5.3%.

   Oracle helped lead Wall Street higher with a leap of 13.3% even though it 
reported weaker profit for the latest quarter than analysts expected. Financial 
analysts pointed to strong bookings, including contracts related to 
artificial-intelligence training.

   A furor around AI has helped send stocks to records despite worries about 
high interest rates and the slowdown in the economy that they induce. Nvidia 
again was the strongest force pushing the S&P 500 higher, with a gain of 3.5%. 
The chip company has become the poster child of the AI rush, and its total 
market value has topped $3 trillion.

   Apple was nearly as strong a force pushing up on the S&P 500 as Nvidia after 
rising 2.9%. Its stock has been jumping the last two days after getting a cool 
initial reception to the announcement of several AI-related offerings coming to 
its operating systems.

   All told, the S&P 500 rose 45.71 points to 5,421.03. The Nasdaq gained 
264.89 to 17,608.44, and the Dow dipped 35.21 to 38,712.21.

   In the bond market, the yield on the 10-year Treasury fell to 4.32% from 
4.40% late Tuesday and from 4.60% a couple weeks ago. The two-year Treasury 
yield, which more closely tracks expectations for the Fed, slumped to 4.75% 
from 4.83% late Tuesday. Yields had been down even more earlier in the day.

   In stock markets abroad, European indexes rallied following the release of 
the encouraging U.S. inflation data. In Asia, where markets closed before the 
data came out, indexes were mixed. Japan's Nikkei 225 index lost 0.7% as 
investors wait for the Bank of Japan's latest announcement on interest rates 
due Friday.

   ___

   AP Business Writers Matt Ott and Elaine Kurtenbach contributed.

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