By Sinéad Carew and Bansari Mayur Kamdar

(Reuters) -Wall Street's three major indexes notched record closes on Wednesday with the benchmark S&P 500 and the Nasdaq both advancing more than 1%, after a smaller-than-expected rise in consumer inflation bolstered investors' hopes for interest rate cuts by the Federal Reserve.

All three indexes hit intraday record highs with technology stocks leading the charge. The blue-chip Dow drew closer to the 40,000 milestone.

Tepid U.S. Consumer Price Index (CPI) data for April fueled optimism that inflation was easing after three months of higher-than-expected numbers. This led traders to raise bets that the Fed will cut its policy rate in September and December.

"It's a relief we didn't have a fourth hot CPI report," said Carol Schleif, chief investment officer at the BMO family office in Minneapolis. "Clearly markets liked that the inflation numbers looked softer. Retail sales came in softer. It's pretty clear evidence that the economy came off the boil and is operating at a more sustainable pace."

Other data released on Wednesday showed U.S. retail sales were unexpectedly flat in April as higher gasoline prices pulled expenditure away from other goods, indicating that consumer spending was losing momentum.

The Dow Jones Industrial Average rose 349.89 points, or 0.88%, to 39,908.00 while the S&P 500 gained 61.47 points, or 1.17%, at 5,308.15.

The Nasdaq Composite advanced 231.21 points, or 1.40%, to 16,742.39, its second record close in as many days. The S&P 500 and the Dow last registered record closing prices on March 28.

Among the S&P 500's 11 major industry sector indexes, most gained ground with rate-sensitive technology stocks and real estate outpaced the rest with respective gains of 2.3% and 1.7%.

Consumer discretionary was the biggest laggard, ending the day virtually unchanged from Tuesday.

Equities had built on Tuesday's gains, when Fed Chair Jerome Powell's assessment of U.S. growth, inflation and the interest rate outlook reassured investors after hotter-than-expected producer prices for April.

Stocks have rallied so far this year on better-than-expected first-quarter earnings and expectations that the Fed will be able to cool inflation without damaging growth and eventually transition to cutting interest rates.

Among megacap stocks, Nvidia was the S&P 500's biggest index point contributor, rising 3.6%. Microsoft, the benchmark's next biggest boost, added 1.7% and Apple advanced 1.2%.

Leading S&P 500 percentage gains was a 15.8% advance in Super Micro Computer Inc, which like Nvidia is seen as a good way to bet on the take-off in demand for artificial intelligence technology.

In earnings, investors waited for Walmart to provide more color on consumer spending in its quarterly report due out early on Thursday. The retail giant's shares ended down 0.05%, marking its third straight day of declines.

Retail investor darling GameStop ended down 18.9%, snapping this week's sharp rally driven by "Roaring Kitty" Keith Gill, a central figure behind the 2021 meme stock frenzy, who posted bullish comments on social media platform X.

Other meme stocks followed suit with AMC Entertainment dropping 20% and Koss Corp ending down 19.2%.

Trading volume was brisk with 14.78 billion shares changing hands on U.S. exchanges, according to the latest tally, compared with the 11.11 billion average for the last 20 sessions.

Advancing issues outnumbered decliners by a 3.02-to-1 ratio on the NYSE, which had 645 new highs and 40 new lows.

On the Nasdaq advancing issues outnumbered decliners by a 1.69-to-1 ratio while it recorded 285 new highs and 76 new lows. The S&P 500 posted 71 new 52-week highs and no new lows.

(Reporting by Sinéad Carew, Bansari Mayur Kamdar and Shristi Achar A in Bengaluru; Additional reporting by Ankika Biswas; Editing by Sriraj Kalluvila, Devika Syamnath, Pooja Desai and Richard Chang)