A tame inflation report brought the bulls back to Wall Street on Wednesday as traders expressed relief that consumer prices moderated even as food prices soared in April. 

However, the stock market closed well off its best levels of the day as tech stocks and the Nasdaq Composite headed south in the late afternoon.

Today's Market

The Dow Jones Industrial Average rose 66.20 points, or 0.52% to 12898.38, the Standard & Poor’s 500 index gained 5.62 points, or 0.40%, to 1408.66 and the Nasdaq Composite Index picked up 1.58 points, or 0.06%, to 2496.70. The consumer-friendly Fox 50 rose 3.83 points, or 0.39%, to 996.96.

Wall Street bounced back a day after the major indexes closed mixed. In addition to the headline economic news, the market received better-than-expected quarterly results from Freddie Mac (FRE), Sony (SNE) and Macy's (M). 

Hewlett-Packard (HPQ) led the Dow higher, rebounding 3.1% after two days of sell-offs. Also, telecom Verizon (VZ) and Wal-Mart (WMT) posted solid gains. Caterpillar (CAT) was one of the only decliners on the Dow, falling 1.6% in tandem with heavy equipment company Deere (DE). 

The Nasdaq Composite shed nearly all of its gains late in the day, with names like Google (GOOG), Apple (AAPL) and Research in Motion (RIMM) all falling into negative territory. 

Just over a month ago Wall Street was growing anxious if not downright fearful over the prospect of stagflation -- stagnant economic growth coupled with soaring inflation. 

However, just as fears of a recession have eased somewhat (fewer economists recently surveyed by The Wall Street Journal now believe the economy will be in a recession), inflation worries may ease as a result of Wednesday's report. 

The Labor Department said the consumer price index, the monthly gauge of inflation, rose by 0.2% in April, in line with estimates. If so-called "volatile" food and energy prices are stripped from the equation, "core" CPI gained 0.1% -- better than the 0.2% rise expected. 

“I think the market sees it as favorable. The numbers looked pretty good, not indicating anything too inflationary," said Stephen Carl, head trader at Williams Capital. 

There was some skepticism among traders about the accuracy of the inflation data, given soaring crude oil and food prices in recent months. The government did say food costs jumped 0.8% in April -- the largest such increase in a single month in 18 years.

“As long as we don’t sleep, eat, drink or drive our cars, it was a good number," Alan Valdes of Hilliard Lyons told FOX Business. 

Meanwhile, Wall Street is closely watching the situation at Yahoo! (YHOO), the Internet company that was unable to reach a friendly deal with software titan Microsoft (MSFT) earlier this month over a divide in price. Growing frustration among Yahoo shareholders has sparked the specter of a revolt against the company's executives and directors. 

Billionaire activist investor Carl Icahn, who recently purchased 50 million shares of Yahoo, is reportedly weighing the idea of a proxy fight to draw Microsoft back to the negotiating table. Reports of the potential move sparked a rally in shares of Yahoo and on the Nasdaq Composite on Tuesday. A decision from Icahn was expected on Wednesday, according to The Wall Street Journal. 

More M&A talk would be welcomed by Wall Street, especially after Hewlett-Packard (HPQ) agreed to acquire technology services firm Electronic Data Systems (EDS) for $13.25 billion earlier this week. The M&A front has been quiet in recent months as the freeze in the credit markets made financing for mega deals very difficult. 

“I think all these mergers and acquisitions are a positive for the market -- especially if they are successful and you don’t have people backing out of the deal," said Carl.

Even though the oil market received a somewhat bullish weekly inventory report, crude prices pulled back on Wednesday. The Department of Energy reported crude stockpiles increased by 200,000 barrels last week. Economists had been forecasting a much larger 1.8 million barrel increase. Crude closed at $124.23 a barrel, down $1.57 on the day.

Corporate Movers

Freddie Mac (FRE) rose 9.2% after it posted a loss of $151 million in the first quarter but beat expectations. The government sponsored buyer of home loans lost 66 cents per share, much better than the 92 cent loss Wall Street had been bracing for. Freddie Mac also said it plans to raise $5.5 billion in additional capital to help overcome rising credit costs.

Deere (DE), the farm equipment giant, posted a 22% rise in fiscal second-quarter profit but also warned about soaring crop prices. Shares of Deere slid 9.9%. The company earned $1.74 per share, 1 cent shy of estimates from Thomson Reuters. Deere said sales rose 18% to $8.1 billion from $6.9 billion a year ago. Deere said that it's future earnings could be negatively impacted by rising material costs. 

Macy's (M) jumped 3.6% after it beat the Street with a first-quarter loss of $59 million. The department store's adjusted-profit of 2 cents per share topped estimates of a 2 cent loss. 

Sony (SNE) rose 8.4% as it posted a better-than-expected profit overnight. Sony said it earned 29 billion yen ($277 million) last quarter, boosted unexpectedly by the company’s Playstation 3 sales. Sony also boosted its dividend to 50 yen.

Virgin Mobile (VM) confirmed negotiations with South Korean mobile firm giant SK Telecom (SKM) over possible strategic options. Virgin Mobile, which is a unit of Richard Branson’s Virgin Group, described the talks as being in early stages. SK Telecom is South Korea’s largest wireless telecom. Virgin Mobile closed about 11% higher but had been up nearly 30% earlier. 

Whole Foods Market (WFMI) plunged 13.8% on a first-quarter earnings miss and several analyst downgrades. The natural-foods grocer earned 29 cents per share on a 28% rise in revenue but analysts polled by Thomson Reuters were looking for a profit of 30 cents. Analysts at PiperJaffray and Goldman Sachs (GS) cut the stock's price target and profit estimates on the results.

Electronic Arts (ERTS) slid 3.5% even though the video game publisher’s fiscal fourth-quarter results beat the Street. Excluding one-time items, EA earned $30 million, or 9 cents per share. Analysts polled by Thomson Reuters had been looking for break even earnings from EA, which also posted an 84% increase in revenue to $1.13 billion. EA gave no new information about its $2 billion bid to buy Take-Two Interactive (TTWO), the publisher of the widely successful Grand Theft Auto video game.

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, rose 40.39 points, or 1.06%, to 3857.46. The FTSE 100, London's benchmark index, gained 4.10 points, or 0.07%, to 6216.00. 

On the continent, Paris's CAC 40 Index picked up 56.57 points, or 1.14%, to 5055.24 while Germany's DAX rose 23.05 points, or 0.33%, to 7083.24. 

In Asia, Tokyo's Nikkei 225 Index gained 164.82 points to 14118.55. Hong Kong's Hang Seng Index declined 19.29 points to 25533.48.