NEW YORK, June 12 (Reuters) - Signs of falling U.S.

inflation on Wednesday and growing hopes for interest rate cuts

from the Federal Reserve could be a positive signal for large

swathes of the stock market that have languished in a rally led

by Big Tech.

Benign consumer price data fueled bets the Fed will lower

rates in coming months and sent the S&P 500 to fresh

highs, as investors awaited comments from Fed Chairman Jerome

Powell at the conclusion of the central bank's meeting.

Some investors believe expectations of cooling inflation and

looser monetary policy could also boost areas of the market that

have been hurt by higher rates, including small caps and

financial companies. That could ease worries about the risks of

a market rally that has been concentrated in a cluster of giant

tech stocks.

Short-term interest-rate futures are now pricing in more

than a 70% chance of a rate cut by September, up from only

slightly better than a coin toss earlier in the day.

Though the S&P 500 is up about 14% this year, about 60% of

the return has been driven by six companies whose shares have an

outsized weighting in the index: Nvidia ( NVDA ), Microsoft ( MSFT )

, Apple ( AAPL ), Meta Platforms ( META ), Alphabet

, and Amazon.com ( AMZN ), data from S&P Dow Jones

Indices showed.

If Wednesday's CPI report is the start of improved data that

raises chances of rate cuts, "that can bring the whole yield

curve lower, benefiting some of the areas that have been

sensitive to the upside in yields," said Angelo Kourkafas,

senior investment strategist at Edward Jones, including small

caps and some economically sensitive stocks such as financials

and industrials.

While technology and growth stocks have powered stock

indexes higher in recent years, interest rate-sensitive areas of

the market have often surged when hopes of easier monetary

policy came to the fore.

One such episode came in the final months of last year, when

small caps soared on expectations the Fed was done cutting

rates. The small cap-focused Russell 2000 gained 13.6% in the

final quarter of 2023, compared to an 11.2% gain for the S&P

500.

"The Fed doesn't even need to cut in July as we expect, it

just needs to be heading towards that rate cut cycle, if you

will, and that should contribute to broadening performance,"

Luke Tilley, Chief Economist at Wilmington Trust.

"Our view is not just that there is room for broadening, but

that we fully expect that," he said.

Some broadening was in evidence on Wednesday. Though shares

of market leaders such as Apple ( AAPL ) and Nvidia ( NVDA ) surged, the small-cap

focused Russell 2000 was up around 2.6% against a 1.1%

rise in the S&P 500. The small-cap index was down 0.1% for the

year heading into Wednesday's report.

Other areas bouncing back on Wednesday included the S&P 500

banks index, up 1.1%, although it remained in negative

territory for the quarter. The Dow Jones Transportation Average

was up 0.9% on the day, while the S&P 500 real estate

sector gained 1.7%; both groups are still logging

declines on the year.

The equal weight S&P 500 - a proxy for the average

stock in the index - was up 0.9%. It has gained just 4.7% this

year.

To be sure, investors were sticking with some of this year's

winners too. Technology, the best performing S&P 500

sector this year, was up 2.9% on the day, including gains of

more than 4% each for Nvidia ( NVDA ) and Apple ( AAPL ).