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Wall St climbs ahead of US inflation data

US stocks have ended up sharply, with the S&P 500 and Nasdaq gaining more than one per cent each as investors were optimistic ahead of an inflation report that could give the Federal Reserve room to dial back on its aggressive interest rate hikes.

The much-anticipated report due on Thursday is projected by economists polled by Reuters to show US consumer prices grew 6.5 per cent year-on-year in December, moderating from a 7.1 per cent rise in November.

Among sectors, real estate and consumer discretionary were Wednesday's strongest performers, while Microsoft, and other mega-cap growth names gave the S&P 500 its biggest boost.

The benchmark index is up so far for 2023 after falling sharply last year. Hopes that the Fed could soon ease back on its aggressive tightening after raising the federal funds rate seven times in 2022 have boosted the market in recent sessions, even as comments by some Fed officials have supported the view that the central bank needs to remain vigilant about raising rates to fight inflation.

"Investors are anticipating that we're closer to a pause than at any other point last year," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. He said that would be welcomed by the market.

Also, "any time you have a down year, it's not surprising many times to have a reversal at the start of the new year", he said.

The Dow Jones Industrial Average rose 268.91 points, or 0.8 per cent, to 33,973.01, the S&P 500 gained 50.36 points, or 1.28 per cent, to 3,969.61 and the Nasdaq Composite added 189.04 points, or 1.76 per cent, to 10,931.67.

Money market participants see a 75 per cent chance the Fed will raise the benchmark rate by 25 basis points in February.

This week also marks the start of the fourth-quarter earnings season for S&P 500 companies, with overall S&P 500 earnings expected to have declined year-over-year, according to IBES data from Refinitiv.

The biggest US banks, which kick off the season later this week, are expected to report lower quarterly earnings as risks of a recession rise due to monetary policy tightening.

Goldman Sachs began laying off staff on Wednesday in a sweeping cost-cutting drive, a source familiar with the matter said. Shares of Goldman Sachs ended up two per cent.

Retailer Bed Bath & Beyond Inc sharply extended recent gains to end up 68.6 per cent despite bleak quarterly results, with some investors speculating it could be a potential acquisition target.