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By Sinéad Carew, Sruthi Shankar and Johann M Cherian
June 30 (Reuters) - Wall Street indexes closed higher on Friday, with the tech-heavy Nasdaq posting its biggest first-half gain in 40 years as inflation showed signs of cooling while Apple returned to a $3 trillion market valuation.
Apple Inc breached the $3 trillion mark for the first time since January 2022, lifted by growing appetites for growth stocks generally as well as bets the iPhone maker will succeed in new markets.
Investors perked up on signs of cooling U.S. inflation from measures that are closely watched by the Federal Reserve. A Commerce Department report showed the Personal Consumption Expenditures (PCE) index advanced 3.8% versus April's 4.3%. Excluding volatile food and energy, the core PCE index gained 0.3%, down from 0.4% in the previous month.
The data fueled hopes the Fed could be near the end of its rate-hiking cycle. It helped that Treasury yields fell in response to cooling inflation, said Burns McKinney, portfolio manager at NFJ Investment Group in Dallas, Texas.
"Everything is going up because you're seeing the economy cooling but not that much. The Fed might have a better-than-we-thought shot of threading the needle and cooling inflation without killing the economy in the process," said McKinney.
The money manager said he did not think the Fed can dampen inflation without causing a recession, yet "the chances are going up."
According to preliminary data, the S&P 500 gained 53.37 points, or 1.21%, to end at 4,449.81 points, while the Nasdaq Composite gained 193.85 points, or 1.43%, to 13,785.18. The Dow Jones Industrial Average rose 278.00 points, or 0.81%, to 34,400.42.
The Nasdaq composite registered its strongest first-half performance in 40 years while the Nasdaq 100 index of top technology stocks boasted its biggest first half gain on record.
The S&P 500's growth index rose and investor favorites such as Amazon, Microsoft, Alphabet and Nvidia were all extending a blistering rally fueled by strong earnings and a buzz around artificial intelligence.
Small cap stocks were also attracting attention with the Russell 2000 index registering its fifth straight day of gains, its longest winning streak since the five sessions ending March 3.
Still, traders were pricing in an 86.8% chance that the Fed will hike rates by 25 basis points to 5.25%-5.50% range in its July meeting, according to CMEGroup's Fedwatch tool, down slightly from the 89.3% on Thursday.
Hawkish remarks from Fed Chair Jerome Powell and strong economic data earlier this week boosted bets the Fed will keep hiking rates, but stock markets took comfort in signs of strength in the U.S. economy.
The CBOE Market Volatility Index, Wall Street's fear gauge, earlier slipped to a one-week low at 12.96 points.
Among single stocks, Nike Inc fell after it forecast first-quarter revenue below Wall Street expectations.
Carnival Corp shares jumped after Jefferies upgraded the cruise operator's stock to "buy" from "hold".
(Reporting by Sinéad Carew in New York, Sruthi Shankar, Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Shinjini Ganguli and David Gregorio)
