US stocks advance after tame CPI report

NEW YORK, Aug 16 (Reuters) U.S. stocks rose on Wednesday as a tame increase in core consumer prices supported the view the Federal Reserve has room to keep interest rates unchanged in the short term.

Shares in Hewlett-Packard Co. rose before the computer maker wraps up the quarterly reporting season among Dow components, and posts figures after the bell.

Abercrombie&Fitch Co., one of the day's top percentage gainers, jumped after the retailer posted a stronger-than-expected quarterly profit.

Consumer prices, excluding food and energy, rose less than expected in July and followed a weaker reading on producer prices on Tuesday that sparked a rally in stocks. In another report, the pace of U.S. home building fell more than expected in July.

''The core rate was elevated enough so that the Fed will remain on inflation alert, but the fact that it wasn't worse than expected and that housing was weak seems to be giving bonds a boost and stocks will likely try to follow through,'' said Jim Awad, chairman of Awad Asset Management in New York.

The Dow Jones industrial average was up 29.22 points, or 0.26 percent, at 11,259.48. The Standard&Poor's 500 Index was up 2.95 points, or 0.23 percent, at 1,288.53. The Nasdaq Composite Index was up 6.19 points, or 0.29 percent, at 2,121.20.

The Labor Department said the Consumer Price Index for July rose 0.4 percent from a 0.2 percent increase in June.

The CPI core rate, which excludes food and energy prices, rose 0.2 percent last month after a 0.3 percent increase in June, below economists expectations.

Shares in HP gained 1.1 percent to .34, while Abercrombie climbed 8.6 percent to .31.

Meanwhile, the pace of U.S. home building fell 2.5 percent in July to an annualized rate of 1.795 million units, from a downwardly revised 1.841 million, the Commerce Department said.

Among decliners, Applied Materials Inc. slid 2 percent to .36 on Nasdaq. The top supplier of equipment for making microships, reported good profit growth on Tuesday but said rising chip inventories would hit demand for its products.

REUTERS RA DB2035