US STOCKS-Oil drop sends shares higher

(Updates to midday, changes byline)

*Microsoft shares jump as Icahn seeks Yahoo control

*Data on industrial output, NY manufacturing weak

*CNET shares soar on CBS deal

By Cal Mankowski

NEW YORK, May 15 (Reuters) - U.S. stocks rose on Thursday as the price of oil fell, overshadowing a barrage of weak economic news.

Tech bellwether Microsoft Corp (MSFT.O: Quote, Profile, Research) shares rose after financier Carl Icahn started a proxy battle to get control of Yahoo and force it to strike a deal with Microsoft.

After an initial rise above $126 per barrel, crude oil futures did an abrupt about-face and sank to below $122. Traders said a surprisingly large increase in U.S. natural gas inventories contributed to crude's fall.

Earlier, investment bank UBS sharply raised its projection for oil prices and said inflation risks from rising crude costs would put a global economic recovery in 2009-2010 at risk. An index of oil shares .OIX rose 1.1 percent.