*

JPMorgan ( JPM ), Citi, Wells Fargo ( WFC ) drop after results

*

Small-cap stocks surge

*

U.S. producer prices rise marginally in June

(Updates with market close)

By Noel Randewich and Medha Singh

July 12 (Reuters) - Wall Street stock indexes closed

higher on Friday, on bets that the U.S. Federal Reserve will cut

interest rates in September, while big banks fell after

reporting mixed results.

Some of the market's most valuable companies bounced back

after dipping in the previous session, with rallies by Apple ( AAPL )

and Nvidia ( NVDA ).

JPMorgan Chase's ( JPM ) second-quarter profit was lifted by

rising investment banking fees. However, shares of the world's

largest bank dipped.

Wells Fargo ( WFC ) tumbled after the lender missed

estimates for quarterly interest income, while Citigroup ( C/PN )

fell despite reporting a surge in investment banking revenue.

The small-cap Russell 2000 rallied for a third

straight day and reached the highest since 2022, while the S&P

400 Mid Cap index also jumped. The two indexes have

lagged the S&P 500 this year.

"That rotation into small- and mid-caps is still continuing

and that's a positive sign overall," said Ryan Detrick, chief

market strategist at Carson Group.

According to preliminary data, the S&P 500

gained 31.92 points, or 0.57%, to end at 5,616.46 points,

while the Nasdaq Composite gained 113.58 points, or

0.62%, to 18,396.98. The Dow Jones Industrial Average

rose 260.02 points, or 0.65%, to 40,013.77.

With stock indexes trading around record highs, investors

are betting on strong profit growth from companies beyond Nvidia ( NVDA )

and other heavyweights that have benefited from

explosive growth in artificial intelligence computing.

Analysts expect second-quarter earnings for S&P 500 firms to

jump 9.6%, with strong growth from technology companies but

declining earnings in real estate, industrials and materials,

LSEG IBES data showed.

"The thematic appeal of the AI story is still very much

there," said Zachary Hill, head of portfolio management at

Horizon Investments in Charlotte, North Carolina. "We just need

to see an inflection in earnings growth coming from the rest of

the market, and that's something that we're going to be watching

for quite intently over the next couple weeks."

Data showed producer prices were slightly

hotter-than-expected in June but that did little to change bets

on the first rate cut in September. The report follows data

showing a surprise fall in U.S. consumer prices on Thursday.

Traders are betting on a 94% chance of a rate cut by

September, up from 78% a week ago, according to CME Group's

FedWatch.