(Adds close of U.S. markets)
* Benign U.S. inflation reading for April buoys sentiment
* Oil falls from recent record highs as inventories rise
* Yen falls as U.S. consumer price data boost risk demand
By Herbert Lash
NEW YORK, May 14 (Reuters) - U.S. stocks rallied on
Wednesday as a tame U.S. inflation report eased worries that
the Federal Reserve may soon hike interest rates to curb rising
consumer prices, lifting investors' appetite for risk.
The smaller-than-expected 0.2 percent rise in U.S. consumer
prices in April soothed concerns about surging inflation and
drove up the price of longer-maturity U.S. government debt.
Inflation erodes the value of bonds over time.
The yen fell broadly as the Consumer Price Index report
raised risk appetites and was seen giving the Federal Reserve
flexibility to deal with the downturn in the United States,
world's biggest economy.
Oil eased from record highs near $127 a barrel set on
Tuesday after Iran assured it had no plans to cut exports and
U.S. inventory showed a rise in the supply of distillates.
The prospect of steady to lower borrowing costs lifted
shares of U.S. financial companies, home builders and
retailers.
"The big news is that the CPI, both overall and core, were
better than expected," said Al Goldman, chief market strategist
at Wachovia Securities in St. Louis. "That dispelled a lot of
concern by people who were afraid that inflation was going to
run wild and the Fed would have to jack up interest rates."
The Dow Jones industrial average <> was up 66.20 points,
or 0.52 percent, at 12,898.38. The Standard & Poor's 500 Index
<.SPX> was up 5.62 points, or 0.40 percent, at 1,408.66. The
Nasdaq Composite Index <> was up 1.58 points, or 0.06
percent, at 2,496.70.
Stocks, however, ended sharply off earlier highs that had
sent the Dow up as much as around 150 points. A 2.0 percent
decline in shares of iPod maker Apple <AAPL.O> weighed on the
Nasdaq.
However, stronger-than-expected results from department
store operator Macy's Inc <M.N> and a smaller than-expected
loss from home finance company Freddie Mac <FRE.N>, a barometer
for the U.S. housing crisis, helped buoyed sentiment.
Shares of Freddie jumped 9.2 percent to $27.25, while
shares of Macy's rose 3.6 percent to $24.93.
The pullback in oil prices also boosted shares of big
manufacturers such as 3M Co <MMM.N>, whose stock was among the
Dow's top advancers. 3M shares rose 0.7 percent to $77.73.
The April CPI reading helped calm investors a day after
several key Fed officials had voiced concerns about
inflationary pressures following the surge in oil prices to a
series of fresh record highs in recent days.
"It's clearly not the world reality, but to the extent the
Fed follows this data, it makes the case that the Fed is not
going to be ratcheting up rates any time soon," said Michael
Darda, chief economist at MKM Partners LLC, in Greenwich,
Connecticut.
European shares ended higher, also boosted by the tame U.S.
CPI report and as strong earnings reports raised investor
optimism.
Airbus parent EADS <EAD.PA> rose 5.9 percent after it
posted quarterly profits that were stronger than expected and
stuck to its forecast for the year despite fresh delays to its
A380 superjumbo jet.
BNP Paribas <BNPP.PA>, France's biggest listed bank, and
Dutch financial services group ING Groep <ING.AS> also rose
after their results beat most analysts' expectations.
BNP rose 4.9 percent, and ING gained 3.9 percent.
The FTSEurofirst 300 <> index of top European shares
ended 0.6 percent higher at 1,354.70 points, its highest close
in nearly a week.
BHP Billiton <BHP.AX><BLT.L>, the world's biggest mining
company, rose 4.9 percent, fueled by speculation that a
state-controlled Chinese firm was building a stake. Much of the
speculation centered on giant Chinese aluminum maker Chinalco,
already the largest shareholder in mining group Rio Tinto
<RIO.L>.
Oil prices fell even as the latest weekly U.S. fuel
inventory data was mixed, with a rise in crude oil and
distillate stocks but a surprise fall in gasoline.
U.S. crude <CLc1> settled $1.58 lower at $124.22, after
hitting an all-time high of $126.98 a barrel on Tuesday. London
Brent crude <LCOc1> settled down $2.24 at $121.86 a barrel.
Oil prices have rallied on concerns about global distillate
supplies this month, amid signs of rising diesel demand for
power generation in some emerging economies.
U.S. Treasury debt prices were mixed. The benchmark 10-year
U.S. Treasury note <US10YT=RR> was unchanged with the yield at
3.91 percent. The 2-year U.S. Treasury note <US2YT=RR> fell
3/32 to yield 2.52 percent. The 30-year U.S. Treasury bond
<US30YT=RR> rose 11/32 to yield 4.61 percent.
In currency markets, the unexpectedly slower increase in
the consumer price index briefly caused traders to sell the
dollar, but analysts said it did not alter market views the
Federal Reserve interest-rate-cutting campaign was almost
over.
The euro <EUR=> rose 0.02 percent at $1.5461, and against
the yen the dollar <JPY=> rose 0.30 percent at 105.09.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.10 percent at 73.37.
Sterling slumped to a near three-month low against the
dollar after the Bank of England, in its quarterly inflation
report, said British prices would shoot up this year, which
many believe may delay interest rate cuts. Sterling last traded
flat at $1.9946 <GBP=>.
U.S. gold futures ended slightly down as lower crude oil
prices damped sentiment, but expected dollar weakness could
still lift bullion in the near term.
The June contract <GCM8> for gold in New York settled down
$3.10 at $866.50 an ounce.
Asian stocks staged a late surge on Wednesday to take the
Tokyo and Sydney markets to four-month closing highs.
The Nikkei average <> rose 1.2 percent for its highest
close since January, while other Asian stocks <.MIAPJ0000PUS>
were steady.
Sydney's S&P/ASX 200 index <> rose 1 percent to a
four-month closing high as resources firms, led by BHP, enjoyed
high oil and metals prices.
(Reporting by Ellis Mnyandu, John Parry and Lucia Mutikani in
New York, Jane Merriman and Lewa Pardomuan in London and Blaise
Robinson in Paris; Editing by Leslie Adler)
