S&P 500 at three-month high on rising bets of smaller rate hikes

US producer prices fall in July, underlying inflation slows; Disney tops Netflix on streaming subscribers, shares jump; US weekly jobless claims rise for second straight week

The S&P 500 was trading at its highest level in more than three months on Thursday, extending a rally from the previous session as fresh evidence of cooling inflation further cemented hopes of a smaller rise in interest rates.

The benchmark index rose after data showed U.S. producer prices unexpectedly fell in July, bolstering the chance of a 50-basis point hike by the Federal Reserve in September instead of 75 basis points.

Meanwhile, the number of Americans filing new claims for unemployment benefits rose for the second straight week, indicating further softening in the labor market despite tight conditions.

The indexes had sharply rallied on Wednesday following a softer-than-expected rise in consumer prices. The gains came even as policymakers left no doubt they will tighten monetary policy until price pressures are fully broken.

"These economic numbers don't deviate too much from the expectation that the economy continues to do okay and perhaps inflation is at least a bit under control," said Ted Weisberg, the founder and president of Seaport Securities.

"The markets are anxious to get some good news after what has been horrible first six months of the year." Traders are now pricing in a more than 63.5% chance that the Fed will hike interest rate by 50 basis points.

Eight of the 11 major S&P 500 indexes advanced, with financials and industrials adding nearly 1% each, while energy stocks tracked gains in crude prices.

Boosting the blue-chip Dow and the S&P 500, banks extended their rally by 1.2% with Goldman Sachs and JPMorgan Chase & Co up 1.3% and 0.8%, respectively.

At 12:25 p.m. ET, the Dow Jones Industrial Average was up 155.20 points, or 0.47%, at 33,464.71, the S&P 500 was up 14.82 points, or 0.35%, at 4,225.06, and the Nasdaq Composite was down 5.68 points, or 0.04%, at 12,849.13.

The tech-heavy Nasdaq lagged its peers as many megacap growth and technology stocks reversed early gains as U.S. Treasury yields pared losses.

"Some traders are looking to start taking some profits but clearly the short-term direction is higher, not lower pending additional macro data," said Michael James, managing director of institutional equity trading at Wedbush Securities.

High-growth stocks that had rallied in the previous session and whose valuations are vulnerable to rising bond yields, such as Tesla Inc and Amazon.com Inc, fell nearly 1% each as the benchmark 10-year yield rose to 2.83%.

Despite its recent bounce of mid-June lows, the tech-heavy Nasdaq is down 17.8% so far this year as fears of an aggressive monetary policy sapped appetite for equities, particularly high-growth stocks.

The U.S. central bank has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.

In earnings-driven news, Walt Disney jumped 5.4% as the media giant edged past rival Netflix Inc with 221 million streaming customers and announced it will increase prices for customers who want to watch Disney+ or Hulu without commercials.

Bumble Inc fell 7.9% on cutting its full-year revenue forecast, taking a hit from the Ukraine war, while also grappling with competition from rival Match Group Inc in the online dating market.

Advancing issues outnumbered decliners by a 2.59-to-1 ratio on the NYSE and by a 1.57-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and 29 new lows, while the Nasdaq recorded 55 new highs and 16 new lows.