U.S. STOCKS - Wall Street gains after tame CPI data

By Cal Mankowski

NEW YORK (Reuters) - U.S. stocks rose on Friday, helped by a government report that showed underlying price pressures rose moderately in May, easing fears that inflation would force a near-term rise in interest rates.

Despite relentless gains in oil and food prices recently, investors bet the latest inflation statistics would let the Fed keep rates steady, helping the economy recover and improving the outlook for corporate profits.

Shares of Lehman Brothers Holdings Inc rose 10 percent, snapping a five-day losing streak, as investors looked for cheap stocks while some short-sellers unwound their positions.

The Labor Department said the Consumer Price Index rose at its fastest pace in six months in May, with the "headline" measure that includes soaring gasoline prices up 0.6 percent. But core CPI, which excludes volatile energy and food costs, rose 0.2 percent, matching expectations.

"There was a little relief on the CPI," said Craig Hester, president and chief executive of Hester Capital Management, in Austin, Texas. "While the headline number was not particularly good, the core number that the Fed tends to focus on was still stuck at 0.2 percent. People took some solace from that."

Hester said that from a technical perspective, the stock market has been in an "oversold" condition, which helped push prices higher.

The Dow Jones industrial average rose 67.17 points, or 0.55 percent, to 12,208.75. The Standard & Poor's 500 Index gained 9.34 points, or 0.70 percent, to 1,349.21. The Nasdaq Composite Index climbed 34.79 points, or 1.45 percent, to 2,439.14.

A drop of $2.34 in the front-month U.S. crude oil price to $134.40 added to the market's positive tone.