Wall Street set to rise as consumer price growth slows

© Reuters. FILE PHOTO: American flags hang from the facade of the New York Stock Exchange (NYSE) building after the start of Thursday's trading session in Manhattan in New York City, New York, U.S., January 28, 2021. REUTERS/Mike Segar/File Photo

By Ambar Warrick and Devik Jain

(Reuters) - Wall Street indexes were set for a strong open on Tuesday as slowing growth in monthly consumer prices eased fears that high inflation will push the Federal Reserve to reduce stimulus early.

Data from the Labor Department showed underlying consumer prices rose at their slowest pace in six months in August, suggesting that inflation had probably peaked. July's reading had also shown a slight slowdown in price increase.

The reading lends further credence to the Fed's view that a recent spike in inflation is transitory, a relief to investors after data last week showed a strong rise in August producer prices.

"It doesn't force the Fed's hand, so there's a possibility that the Fed could drag its feet and when they do announce tapering, it may be smaller than what the Street may be looking for that time," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

The S&P 500 and Dow Jones snapped five days of losses after a volatile session on Monday, with economically sensitive sectors such as energy and financials supporting the indexes.

U.S. S&P 500 E-minis were up 16.75 points, or 0.37%, at 08:43 a.m. ET. Dow E-minis were up 121 points, or 0.35%, while Nasdaq 100 E-minis were up 58.5 points, or 0.38%.

Focus is also on the possible passage of U.S. President Joe Biden's $3.5 trillion budget package, which is expected to include a proposed corporate tax rate hike to 26.5% from 21%.

A possible hike in corporate taxes is yet another uncertainty, along with recent concerns over slowing economic growth due to rising COVID-19 cases.

Market participants now expect a substantial correction in stock markets by the end of the year, with some investors turning bearish on a global economic recovery.

Among individual stocks, CureVac slumped more than 9% in premarket trade after the German biotechnology firm canceled manufacturing deals for its experimental COVID-19 vaccine with two prospective partners, after rivals with approved shots boosted production.

Oil stocks, which were the best performers in the previous session, extended gains into premarket trading, as crude prices hit a six-week high on expectations of more supply disruptions due to a hurricane in the Gulf Coast.

Major technology stocks, which had lagged their broader peers in the previous session, rose slightly after the inflation reading. But U.S.-listed Chinese firms fell as investors remained wary of regulatory shocks from Beijing.