Benign inflation and strong results lift Wall St

By Caroline Valetkevitch

NEW YORK (Reuters) - Stocks rose on Wednesday in light trading after a modest rise in consumer prices in April cooled inflation fears while Macy's Inc (M.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) posted reassuring quarterly results.

A milder-than-expected gain in the Consumer Price Index took the edge off fears of an inflationary spurt triggered by soaring energy prices. That could allow the Federal Reserve more time to hold interest rates steady, analysts said.

Shares of retailers and home builders, which benefit from steady to lower borrowing costs, advanced. The S&P retail index .RLX rose 1.6 percent, as Macy's stood by the profit forecast for its department stores despite expectations of an economic slowdown.

Freddie Mac, seen as a housing market barometer, brightened the mood on Wall Street by raising its growth outlook and unveiling a plan to raise new capital to support the beleaguered home loan market.

"People were nervous about the inflation number. When it was somewhat better than expected, that triggered the rally," said Eric Kuby, chief investment officer at North Star Investment Management Corp., in Chicago.

Stocks pared gains late in the session, leaving the Nasdaq just barely higher. Shares of Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) slid as investors took profits after two days of gains in the stock.

The market's sharp climb "ran out of steam without another leg of news to keep the rally going," Kuby said.

The Dow Jones industrial average .DJI rose 66.20 points, or 0.52 percent, to end at 12,898.38. The Standard & Poor's 500 Index .SPX added 5.62 points, or 0.40 percent, to 1,408.66. The Nasdaq Composite Index .IXIC inched up 1.58 points, or 0.06 percent, to 2,496.70.  Continued...