By Amruta Khandekar and Ankika Biswas
(Reuters) - Wall Street's main indexes jumped on Tuesday as growing evidence of cooling inflation bolstered hopes of smaller rate hikes by the Federal Reserve, while Walmart (NYSE:WMT)'s upbeat forecast powered gains in retail sector.
Data showed U.S. producer prices increased less than expected, rising 8% in the 12 months through October against an estimated 8.3% rise, according to a Reuters poll of economists.
The report follows a softer-than-expected consumer prices reading late last week, which sparked a massive rally on hopes that the Fed would tone down its aggressive monetary policy approach that has roiled markets this year.
Following the latest data, traders' bets of a 50-basis points rate hike in December surged to 91% compared with 71.5% last week.
"Going into the final months of the year, this (the inflation data) gives the Fed a chance to go from at least 75 to 50 basis points and potentially even further," said Phil Blancato, chief executive of Ladenburg Thalmann Asset Management in New York.
Shares of Walmart Inc jumped 7% after the top U.S. retailer lifted its annual sales and profit forecasts, benefiting from a steady demand for groceries despite higher prices.
Its results boosted stocks of other major retailers, including Target Corp (NYSE:TGT) and Costco (NASDAQ:COST). Target will report results on Wednesday.
Home Depot Inc (NYSE:HD) left its annual forecasts unchanged, but the home improvement chain's results exceeded Wall Street expectations and shares rose 1.6% amid a jump in shares of retailers.
Among the S&P 500 sectors, consumer staples was up 1.2%, while the consumer discretionary index jumped 1.9%.
Boosting the Nasdaq, shares of megacap technology and other growth stocks such as Apple (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) rose between 1% and 3%.
Focus was also on comments from policymakers, after Fed Vice Chair Lael Brainard and Governor Christoper Waller in recent days emphasized on the need to keep raising rates to rein in inflation.
Atlanta President Raphael Bostic echoed the views, saying he sees little evidence that the central bank's aggressive monetary policy tightening is slowing inflation.
At 12:41 a.m. ET, the Dow Jones Industrial Average was up 164.48 points, or 0.49%, at 33,701.18, the S&P 500 was up 51.46 points, or 1.30%, at 4,008.71, and the Nasdaq Composite was up 253.48 points, or 2.26%, at 11,449.70.
U.S.-listed shares of Chinese firms including JD.Com, Alibaba (NYSE:BABA) Group Holding rose between 7% and 12% after President Joe Biden and Chinese leader Xi Jinping's meeting on Monday where they pledged more frequent communications.
U.S.-listed shares of Taiwan Semiconductor Manufacturing jumped 12.2% after Warren Buffett's Berkshire Hathaway (NYSE:BRKa) bought more than $4.1 billion of stock in the company.
Advancing issues outnumbered decliners by a 5.30-to-1 ratio on the NYSE and by a 2.80-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and no new lows, while the Nasdaq recorded 56 new highs and 51 new lows.