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U.S. PCE stands at 2.2% in Aug

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Russell 2000 index up 0.7%

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Bristol-Myers gains after schizophrenia drug approval

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Costco slips after Q4 revenue misses estimates

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Indexes up: Dow 0.34%, S&P 500 0.08%, Nasdaq 0.07%

(Updated at 9:55 a.m. ET/1355 GMT)

By Johann M Cherian and Purvi Agarwal

Sept 27 (Reuters) -

U.S. main stock indexes inched up on Friday 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.

"It's a relief to have (inflation) move in the right

direction and hopefully it continues going in that direction,"

said Joe Saluzzi, co-head of equity trading at Themis Trading.

"It really doesn't matter whether it's 50 bps or 25 bps.

What matters is, will they continue cutting rates over the next

year?"

Odds that the central bank will cut rates by 50 basis

points at its November meeting stood at about 52.1%, compared

with 50% seen before the data. Those for a 25 bps reduction

stand at about 47.9%, as per the CME Group's FedWatch Tool.

Inflation moderating towards the central bank's 2%

target gave the Fed enough room to commence its policy easing

cycle with a 50 basis point rate cut last week. Focus will now

shift to a slew of labor market reports due next week.

At 9:55 a.m. ET, the Dow Jones Industrial Average

rose 141.53 points, or 0.34%, to 42,316.64, the S&P 500

gained 4.87 points, or 0.08%, to 5,750.24 and the Nasdaq

Composite gained 12.22 points, or 0.07%, to 18,202.51.

The Russell 2000 index, which tracks small caps,

outperformed with a 0.7% rise.

Nine out of the 11 S&P 500 sectors were higher, led by a

1.1% rise in energy stocks.

Tech stocks such as Nvidia ( NVDA ) and Amazon.com ( AMZN )

lost 0.9% and 0.4%, respectively, and weighed on the

Nasdaq.

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.

Remarks from Fed Governor Michelle Bowman later in the day

will remain in focus.

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 its highest level on

record. The three major indexes are on track for their third

straight week of gains.

Among other stocks, Bristol-Myers Squibb ( BMY ) surged 2.3%

after the U.S. FDA approved its schizophrenia drug.

Costco Wholesale ( COST ) dropped 2.8% after posting

downbeat fourth-quarter revenue.

U.S.-listed shares of Chinese firms such as Alibaba

rose 3.5%, PDD Holdings ( PDD ) climbed 5.8% and NetEase

gained 2.8% after China's central bank lowered interest

rates and injected liquidity into the banking system, in its

latest stimulus move.

Miners such as Arcadium added 4.2% and U.S.-listed

shares of BHP rose 1.5% after a report showed top

Chinese cities Shanghai and Shenzhen are planning to lift key

remaining restrictions on home purchases to attract potential

buyers.

Advancing issues outnumbered decliners by a 2.88-to-1 ratio

on the NYSE and by a 2.28-to-1 ratio on the Nasdaq.

The S&P 500 posted 25 new 52-week highs and no new lows,

while the Nasdaq Composite recorded 37 new highs and 23 new

lows.