Stocks rose Tuesday after a tame report on consumer prices alleviated some fears that the U.S. Federal Reserve would move aggressively to raise interest rates in order to rein in inflation.

The Dow Jones industrial average (search) ended up 45.70 points, or 0.44 percent, at 10,380.43, after earlier climbing as high as 10,428.05. The broader Standard & Poor's 500 Index (search) rose 6.72 points, or 0.60 percent, to 1,132.01, while the Nasdaq Composite Index (search) advanced 25.61 points, or 1.30 percent, to 1,995.60, based on the latest data.

During the afternoon, the Nasdaq had rallied to a session high of 2,006.58, putting it slightly in the plus column for the year, before it gave up some of those gains in the final hour of regular trading.

"Today is a relief rally based on an in-line consumer price index report," said Brian Bush, research director at Stephens Inc., in Little Rock, Arkansas. "We sold off yesterday based on fears that if we got a higher CPI number, the Fed would be inclined to raise rates faster and sooner than what the market factored in. But it came in line, so you see a rally today," Bush said.

The Consumer Price Index (search ) reading for May was 0.6 percent higher, the biggest increase since January 2001, but investors noted that the "core" CPI reading — without energy and food prices, which have been inflated by high oil costs — was in line with expectations, showing that economic growth, and accompanying inflation, may be manageable.

"I think the core number took a little concern out of the market," said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. "It doesn't change the fact that interest rates will rise, but the pace that the Fed has to raise interest rates is the key question. This could call for the more measured pace."

In remarks before a Senate Banking Committee hearing to recommend approval of his fifth term as Fed chief, Alan Greenspan repeated that interest-rate rises were likely to be gradual.

U.S. Treasury debt prices surged, with yields falling the most since September 2001, as the CPI report suggested the Fed might be more measured in raising interest rates than some analysts had expected. The price of the benchmark 10-year note jumped more than 1-1/2 points, pushing its yield down to 4.67 percent from 4.87 percent, its biggest drop since after the market opened following the Sept. 11, 2001 attacks.

With the Organization of Petroleum Exporting Countries (search) promising to increase output to combat high oil prices, and with gasoline prices falling last week for the first time since mid-December, some analysts felt energy prices may soon come under control, removing one of inflation's biggest drivers.

It remained unclear, however, whether the Fed would raise the nation's benchmark interest rate by a quarter percentage point or a half point when it meets June 29. Greenspan gave no clues as to the Fed's thinking before the Senate Banking Committee.

Wall Street, however, was beginning to think that a half-point rate hike might be too much, and could hurt the market's chances for a strong rally.

"I don't think this warrants a half-point," said Brian Belski, market strategist at Piper Jaffray. "I think we see a quarter-point in June and then a nice rally through the summer until we start getting some noise from the election."

Oracle (ORCL) shares fell after the closing bell to $11.60 on the INET electronic brokerage from their close of $11.71 on the Nasdaq. After the close, Oracle reported higher quarterly earnings driven by improving corporate spending on technology. During the regular session, Oracle's stock had gained 16.5 cents, or 1.43 percent.

Boeing Co. (BA) gained 42 cents to $49.25 after the Pentagon awarded the aerospace manufacturer a $3.89 billion contract to develop a new long-range patrol aircraft for the Navy to replace Lockheed Martin Corp.'s (LMT) P-3 Orion. Lockheed was down 61 cents at $49.84.

Lehman Brothers Inc. (LEH) slumped $3.07 to $73.02 despite announcing a 23 percent rise in second-quarter profits. The investment bank beat Wall Street estimates by 10 cents per share.

The merger between J.P. Morgan Chase & Co. (JPM) and Bank One Corp. (ONE) was approved by the Fed late Monday, clearing a major regulatory hurdle. The companies will officially merge July 1. J.P. Morgan Chase rose 9 cents to $37.25, while Bank One climbed 21 cents to $49.09.

Software maker Red Hat Inc. (RHAT) said its chief financial officer, Kevin Thompson, is leaving the company to pursue other interests. The Linux software leader dropped 32 cents to $23.98 on the news.

The Russell 2000 index of smaller companies was up 10.25, or 1.8 percent, at 567.92.

Overseas, Japan's Nikkei stock average fell 0.9 percent. In Europe, Britain's FTSE 100 closed up 0.6 percent, while Germany's DAX index and France's CAC-40 both gained 1 percent for the session.

Reuters and the Associated Press contributed to this report.