By Johann M Cherian and Purvi Agarwal
(Reuters) -The blue-chip Dow rose on Friday to hit an intraday record and small-cap stocks outperformed after a benign inflation report cleared the way for the Federal Reserve to focus on shoring up the labor market while continuing its interest rate easing.
A Commerce Department's report showed that consumer spending increased moderately in August, suggesting the economy retained some of its solid momentum in the third quarter, while inflation pressures continued to abate.
At 11:50 a.m. ET, the Dow Jones Industrial Average rose 410.80 points, or 0.97%, to 42,585.91, the S&P 500 gained 2.69 points, or 0.05%, to 5,748.00 and the Nasdaq Composite lost 61.33 points, or 0.34%, to 18,128.96.
The Russell 2000 index, which tracks small caps that fare better in a low rate environment, gained 1.5% to a one-week high.
Ten out of the 11 S&P 500 sectors were higher, led by a 2% rise in energy stocks, while technology stocks declined 1%.
Nasdaq components such as Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT) lost 2.7% and 0.5%, respectively, as investors turned their focus to other sectors.
Financial stocks including Goldman Sachs and healthcare stocks like UnitedHealth (NYSE:UNH) were the biggest boosts to the Dow.
Investors now slightly favor a bigger 50 basis point cut at the Fed's next meeting with a 52.1% chance, up from a coin toss before the data, as per the CME Group's (NASDAQ:CME) FedWatch Tool.
Cooling price pressures gave the Fed enough room to commence its policy easing cycle with a 50 bps cut last week. Focus will now shift to a slew of labor market reports due next week.
"Markets are just hopeful that we get more cuts. The Fed may accelerate this cutting cycle, but we may not get another 50 bps cut unless we get some bad data - a negative jobs report or a spike in unemployment," said John Luke Tyner, portfolio manager at Aptus Capital Advisors.
Meanwhile, the University of Michigan's final September estimate on consumer sentiment stood at 70.1, compared with estimates of 69.3, as per economists polled by Reuters.
Markets will parse through remarks from Fed Governor Michelle Bowman later in the day.
Late on Thursday, Fed Governor Lisa Cook said the central bank's rare move earlier this month could address increased "downside risks" to employment.
Wall Street's main indexes ended higher in the previous session, with the S&P 500 closing at a record high level. All three indexes are on track for their third straight week of gains.
Among other stocks, Bristol-Myers Squibb (NYSE:BMY) surged 3.2% after the U.S. FDA approved its schizophrenia drug.
Costco Wholesale (NASDAQ:COST) dropped 1.7% after posting downbeat fourth-quarter revenue.
U.S.-listed shares of Chinese firms such as Alibaba (NYSE:BABA) rose 2.8%, PDD Holdings climbed 4.4% and NetEase (NASDAQ:NTES) gained 3% after China's central bank lowered interest rates and injected liquidity into the banking system.
The optimism spilled over to miners such as Arcadium (N:ALTM), which added 3.5%, and U.S.-listed shares of BHP rose 1.8%.
Advancing issues outnumbered decliners by a 3.39-to-1 ratio on the NYSE and by a 2.37-to-1 ratio on the Nasdaq.
The S&P 500 posted 39 new 52-week highs and no new lows, while the Nasdaq Composite recorded 61 new highs and 48 new lows.