US stocks closed higher on Tuesday as traders responded positively to cooler-than-expected producer inflation data, bolstering expectations of a Federal Reserve interest rate cut.

The producer price index (PPI) rose by 0.1 percent in July, down slightly from a month earlier, the Labour Department said in a statement.

The data will likely be well-received by the Federal Reserve as it weighs the right time to begin cutting interest rates from their current 23-year high.

All three major indices on Wall Street finished higher on Wednesday, led by the Nasdaq, which closed up 2.4 percent at 17,187.

The Dow Jones finished 1.0 percent higher at 39,765, and the S&P 500 rose 1.7 percent to 5,434.

"The trend in inflation is leading in the right direction, and today was good news," said Tom Cahill, from Ventura Wealth Management.

"That suggests that the Fed will very likely cut the rates" in September, he added,

Among individual firms, coffee giant Starbucks closed 24.5 percent higher after it named Chipotle chief executive Brian Niccol as its new CEO.

But the good news for Starbucks was bad news for Chipotle, whose shares closed down 7.5 percent following the news of Niccol's departure. (AFP)