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Nov. PCE at 2.4% on yearly basis, below estimated 2.5%

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Real estate leads S&P sectors higher

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U.S. House to vote Friday to avoid govt shutdown

(Updates to market close)

By Chuck Mikolajczak

NEW YORK, Dec 20 (Reuters) -

U.S. stocks rallied to close out the trading week on Friday

after two lackluster sessions as a cooler-than-expected

inflation report and comments from Federal Reserve officials

eased worries about the path of interest rates.

The latest inflation report in the form of the Personal

Consumption Expenditure (PCE) index showed a 2.4% rise in

November on an annual basis, just below the 2.5% estimate of

economists polled by Reuters.

Consumer spending increased in November in another sign of

economic resilience.

After the data, traders raised their slightly increased

expectations for Fed rate cuts in 2025, now expecting the first

one in March and another by October. Before the data, traders

saw a roughly 50% chance of a second rate cut by December 2025.

On Wednesday, the Fed announced its third interest-rate cut

of the year but forecast in its summary of economic projections

(SEP) just two 25-basis point cuts for 2025, down from its

September view of four cuts, in a nod to the economy's continued

health and sticky inflation.

The announcement sparked a sharp sell-off late on Wednesday,

which equities were unable to bounce back from on Thursday. Even

with Friday's rally, each of the three major U.S. indexes

declined for the week.

Also providing support were

comments

from Fed officials, with some acknowledging they were

starting to factor in fiscal policy uncertainty, such as

tariffs, in their outlooks.

"It's kind of obvious what's going on - it's just this

PCE plus dovish Fed commentary offset the market overreaction to

the hawkish cut that everybody was expecting," said Jay

Hatfield, CEO at Infrastructure Capital Advisors in New York.

"We've seen this like 10 times during this Fed cycle.

The market just always overreacts on one side or the other."

According to preliminary data, the S&P 500

gained 64.00 points, or 1.12%, to end at 5,931.08 points,

while the Nasdaq Composite gained 199.83 points, or

1.07%, to 19,579.63. The Dow Jones Industrial Average

rose 511.91 points, or 1.21%, to 42,842.13.

The Dow and S&P recorded their biggest daily percentage

gains since Nov. 6.

The Nasdaq snapped a four-week streak of gains, with the

S&P 500 suffering its biggest weekly percentage decline

in six weeks. The Dow saw its third consecutive weekly

fall.

Each of the 11 major S&P sectors advanced in the

broad-based rally, led by a gain of more than 2% in real estate

and buoyed

by a drop

in Treasury yields.

Small-cap stocks as measured by the Russell 2000,

which are also seen as likely to benefit from lower interest

rates, rallied more than 1%.

Friday's session also marks the simultaneous expiry of

quarterly derivatives contracts tied to stocks, index options

and futures, also known as "triple witching," which could

exacerbate volatility.

Markets were also monitoring the U.S. Congress as it

scrambled to avert a partial government shutdown before a

midnight deadline. Republican leaders in the U.S. House of

Representatives said they would vote on Friday to keep the

federal government operating.