By Devik Jain and Ankika Biswas
(Reuters) - The tech-heavy Nasdaq surged 5% on Thursday as data showed U.S. consumer prices increased less than expected in October, spurring hopes that the Federal Reserve might scale down the size of its future interest rate hikes.
The Labor Department said consumer prices advanced 7.7% in the 12 months through October, while the core rate, which excludes volatile food and energy prices, increased 6.3% on a year-on-year basis last month.
Economists polled by Reuters had expected the CPI and core number to rise 8% and 6.5%, respectively.
"It is a good sign for the Fed ... it's all moving in the direction that the Fed wants it to," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
"Given just this data, it would allow the Fed to raise rates by only 50 basis points rather than 75 at the next meeting."
The data prompted traders to adjust their rate hike bets, with bets of a 50-basis point rate hike in December jumping to more than 70% from 45% before the data was released.
Separately, data also showed that the number of Americans filing new claims for unemployment benefits increased moderately last week.
Following last week's Fed policy meeting, some U.S. central bank officials have made comments that pointed to slower rate rises over coming meetings.
However, they also signaled that the final stopping point for the tightening campaign could be higher than the 4.6% policy makers penciled in just a couple months ago.
The Fed's policy rate is currently in a range of 3.75%-4.00%.
At 9:49 a.m. ET, the Dow Jones Industrial Average was up 775.13 points, or 2.38%, at 33,289.07, the S&P 500 was up 140.60 points, or 3.75%, at 3,889.17, and the Nasdaq Composite was up 520.85 points, or 5.03%, at 10,874.03.
Rate-sensitive technology stocks rallied, with Tesla Inc, Microsoft Corp, Apple Inc, Amazon.com Inc, Meta Platforms Inc and Nvidia Corp up between 5.3% and 7.2%, as Treasury yields tumbled. [US/].
The PHLX Housing index climbed 8.4% to its highest level in two months after getting battered this year on concerns about higher rates denting affordability.
Rivian Automotive Inc jumped 15.3% after the electric-vehicle maker reported a smaller-than-expected loss, higher number of preorders and reaffirmed its full-year production outlook.
The CBOE volatility index, also known as Wall Street's fear gauge, fell to a near two-month low of 23.75 points.
Meanwhile, Republicans edged closer to securing a majority in the U.S. House of Representatives while control of the Senate hinged on a few tight races, two days after Democrats staved off an anticipated "red wave" of Republican gains in midterm elections.
Advancing issues outnumbered decliners for a 13.73-to-1 ratio on the NYSE and a 6.88-to-1 ratio on the Nasdaq.
The S&P index recorded 12 new 52-week highs and no new low, while the Nasdaq recorded 56 new highs and 76 new lows.
(Reporting by Shubham Batra, Bansari Mayur Kamdar, Devik Jain and Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)
