US STOCKS-S&P 500, Nasdaq end at record closing highs as moderate inflation lifts rate hopes

By Saeed Azhar, Johann M Cherian and Sanchayaita Roy

NEW YORK, Aug 12 (Reuters) - The S&P 500 and the Nasdaq ended at record closing highs on Tuesday, as news that July inflation rose broadly in line with expectations bolstered bets on a Federal Reserve interest rate cut next month.

The Labor Department said the Consumer Price Index (CPI) rose 0.2% on a monthly basis in July, while annual inflation came in slightly below forecasts, drawing calls from U.S. President Donald Trump to lower interest rates.

Yields on shorter-dated Treasury bonds US2YT=RR - a reflection of interest rate expectations - slipped and rate futures showed traders are giving an 88.8% chance that the Fed could lower rates by about 25 basis points in September.

"The CPI data is supportive for equities overall, getting some good news with the Fed looking more on track to cut in September and potentially more transitory inflation," said Katherine Bordlemay, co-head of client portfolio management, fundamental equities at Goldman Sachs Asset Management.

"The first thing I'd guide is continue to lean into the theme of the big are getting bigger. We continue to have conviction around mega-tech and technology."

Alphabet GOOGL.O shares rose as Perplexity made a $34.5 billion cash offer to buy the company's Chrome browser.

Intel Corp INTC.O climbed after Trump said he met its CEO, Lip-Bu Tan, on Monday, praising Tan and calling the meeting "very interesting."

Last week, Trump had demanded Tan's immediate resignation , calling him "highly conflicted" over his ties to Chinese firms.

According to preliminary data, the S&P 500 .SPX gained 72.23 points, or 1.13%, to end at 6,445.68 points, while the Nasdaq Composite .IXIC gained 293.94 points, or 1.37%, to 21,679.34. The Dow Jones Industrial Average .DJI rose 481.05 points, or 1.09%, to 44,456.14.

The quality of economic data remains a concern weeks after Trump fired the head of the Bureau of Labor Statistics following downward revisions to previous months' nonfarm payrolls counts. Markets are monitoring developments around Trump's nominee, E.J. Antoni, to the bureau commissioner post and potential candidates for the Fed's top job.

"This is still early innings of this process and just as the Fed will be beginning to cut rates in the autumn, that's when the inflation data will probably start to be registering some of these more direct tariff price increases and it's going to complicate the rate-cutting decision," said John Velis, a macro strategist at BNY.

Relief came as the U.S. and China extended their tariff truce until November 10, staving off triple-digit duties on each other's goods.

U.S. stocks have rallied in recent weeks on the back of strong tech earnings, easing trade tensions, and increased rate cut expectations.

Inflows into U.S. stocks last week were the largest in two years, BofA Global Research data showed.

The Russell 2000 index .RUT, tracking small-cap companies .RUT, also advanced.

An index tracking airline stocks .SPLRCALI surged, putting it on track for its biggest one-day rise in over a month after data showed airfares rose 4% in July.

Bank stocks rallied, with the S&P 500 Banks index .SPXBK up, as analysts said a steepening of the yield curve could help bank earnings as lenders could borrow cheap and lend at a higher rate.

Cardinal Health CAH.N dropped after the drug distributor said it will buy healthcare management firm Solaris for $1.9 billion.