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US STOCKS-Wall St rises on Microsoft, Alphabet earnings as Fed decision looms

·4 min read

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

* Microsoft, Alphabet results spark rally in megacap stocks

* T-Mobile up after raising subscriber growth forecast

* Fed policy decision expected at 2 p.m. ET

* Boeing rises on keeping cash flow goal

* Indexes rise: Dow 0.46%, S&P 1.18%, Nasdaq 2.17% (Updates prices to open)

By Shreyashi Sanyal and Aniruddha Ghosh

July 27 (Reuters) - The tech-heavy Nasdaq led Wall Street's main indexes higher with gains of more than 2% on Wednesday as upbeat quarterly reports from Microsoft and Alphabet lifted sentiment ahead of a key U.S. interest rate decision later in the day.

Investors were on edge after a profit warning from top U.S. retailer Walmart fueled fears of a wider slowdown in spending as high inflation increased costs for consumers. The three indexes had closed sharply lower in the previous session.

Microsoft Corp climbed 4.8% after it forecast revenue would grow by double digits this fiscal year on demand for cloud computing services.

Alphabet Inc added 5.1% as better-than-expected sales at Google search ads brought relief after social media firm Snap Inc's warning last week raised fears of a sharp ad market slowdown.

"A positive reaction from the latest quarterly numbers has been incredibly hard-won given the negative market sentiment surrounding broader tech," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

The S&P 500 communication services index added 3.1%, rising for the first time in five days and led sectoral gains. Tech stocks rose 2.8%.

The results sparked a rally in high-growth stocks.

Meta Platforms Inc added 3% ahead of its quarterly report after markets close, while shares of Apple Inc rose 1.75% and Amazon.com Inc gained 3.1% before their results on Thursday.

Megacap growth stocks have been hammered this year as the Federal Reserve raised interest rates aggressively to tame decades-high inflation. Future cash flows on which valuation of these companies rests are discounted heavily when rates rise.

Investors widely expect the U.S. central bank to increase interest rates by another 75 basis points later on Wednesday, with focus likely to shift to how deeply signs of an economic slowdown have registered with its policymakers.

Money market traders were even placing about a one-in-four chance the Fed would surprise markets with a larger 1-percentage-point increase, as per CME Group's Fedwatch tool.

The decision is due at 2:00 pm ET (1800 GMT) and Fed Chair Jerome Powell's news conference half an hour later should elaborate on how the central bank views the recent economic data and at least hint at its next steps.

"If he (Powell) gets some kind of indication that inflation has come under control, then that's a sign to the market that their (Fed) moves are working and 50 basis points is in the cards for the next meeting," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

At 09:49 a.m. ET, the Dow Jones Industrial Average was up 147.29 points, or 0.46%, at 31,908.83, the S&P 500 was up 46.33 points, or 1.18%, at 3,967.38 and the Nasdaq Composite was up 250.93 points, or 2.17%, at 11,813.50.

Shares of Boeing Co advanced 2.8% after the planemaker stuck to its goal of generating free cash flow this year.

PayPal Holdings Inc jumped 8.2% after a report said activist investor Elliott Investment Management is building a stake in the fintech giant.

T-Mobile US Inc added 3.5% after it raised its subscriber growth forecast for the second time this year and exceeded quarterly profit expectations.

Advancing issues outnumbered decliners by a 2.69-to-1 ratio on the NYSE and by a 2.16-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 29 new lows, while the Nasdaq recorded 27 new highs and 38 new lows. (Reporting by Shreyashi Sanyal, Sruthi Shankar and Aniruddha Ghosh in Bengaluru; Editing by Sriraj Kalluvila)