WASHINGTON (dpa-AFX) - After ending Monday's choppy trading session moderately lower, stocks showed a strong move back to the upside during trading on Tuesday. The major averages more than offset the losses posted in the previous session, with the Nasdaq and the S&P 500 reaching new record closing highs.
The major averages ended the session near their best levels of the day. The Nasdaq surged 296.50 points or 1.4 percent to 21,681.90, the S&P 500 jumped 72.31 points or 1.1 percent to 6,445.76 and the Dow shot up 483.52 points or 1.1 percent to 44,458.61.
The strength on Wall Street came following the release of the Labor Department's closely watched report on consumer price inflation in the month of July.
The Labor Department said its consumer price index rose by 0.2 percent in July after climbing by 0.3 percent in June. The modest increase matched expectations.
The annual rate of growth by consumer prices in July was unchanged from the previous month at 2.7 percent, while economists had expected the pace of growth to tick up to 2.8 percent.
The report also said the core consumer price index, which excludes food and energy prices, climbed by 0.3 percent in July after rising by 0.2 percent in June. The increase by core prices was also in line with estimates.
Meanwhile, the annual rate of growth by core consumer prices accelerated to 3.1 percent in July from 2.9 percent in June. Economists had expected the pace of growth to inch up to 3.0 percent.
Despite the faster than expected annual core price growth, traders seem to believe the data increases the chances the Federal Reserve will lower interest rates next month.
'Although the Fed supposedly focuses more on the core number than on the headline number (in order to strip out the noisier components of inflation), we don't believe that this report will deter the Fed from cutting rates next month,' said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management.
Following the release of the report, CME Group's FedWatch Tool is indicating a 94.4 percent chance the Fed will cut rates by a quarter point in September.
Sector News
Airline stocks showed a substantial move to the upside on the day, with the NYSE Arca Airline Index soaring by 9.3 percent to its best closing level in five months.
Significant strength was also visible among semiconductor stocks, as reflected by the 3.0 percent surge by the Philadelphia Semiconductor Index.
Steel, housing, banking and computer hardware stocks also saw considerable strength, moving higher along with most of the other major sectors.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index surged by 2.2 percent, while China's Shanghai Composite Index climbed by 0.5 percent.
Meanwhile, the major European markets turned in another mixed performance on the day. While the German DAX Index dipped by 0.2 percent, the U.K.'s FTSE 100 Index crept up by 0.2 percent and the French CAC 40 Index advanced by 0.7 percent.
In the bond market, treasuries moved back to the downside following yesterday's modest rebound. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 2.0 basis points to 4.293 percent.
Looking Ahead
A lack of major U.S. economic data may keep some traders on the sidelines on Wednesday ahead of the release several key reports in the latter part of the week.
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