By Shreyashi Sanyal and Aniruddha Ghosh

(Reuters) -U.S. stock indexes were set to open higher 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 rose 3.6% in premarket trading after it forecast revenue would grow by double digits this fiscal year on demand for cloud computing services.

Alphabet Inc added 4.1% 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 results sparked a rally in high-growth stocks. Amazon.com Inc, Meta Platforms Inc and Apple Inc rose ahead of their earnings this week.

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 8:25 a.m. ET, Dow e-minis were up 154 points, or 0.49%, S&P 500 e-minis were up 34.5 points, or 0.88%, and Nasdaq 100 e-minis were up 172.5 points, or 1.42%.

Shares of Boeing Co rose 2.9% after the planemaker stuck to its goal of generating free cash flow this year.

PayPal Holdings Inc jumped 6.9% after a report said activist investor Elliott Investment Management is building a stake in the fintech giant to push it to ramp up its cost-reduction efforts.

T-Mobile US Inc added 3.8% after it raised its subscriber growth forecast for the second time this year and exceeded quarterly profit expectations.

(Reporting by Sruthi Shankar and Aniruddha Ghosh in Bengaluru; Editing by Sriraj Kalluvila)