Bulls win: Day 3

NEW YORK (CNNMoney.com) -- Stocks jumped Friday, rallying for the third session in a row, as a mild core inflation report and falling Treasury bond yields eased interest rate-hike worries.

The Dow Jones industrial average (up 85.76 to 13,639.48, Charts) gained about 85 points, or 0.6 percent while the broader S&P 500 index (up 9.94 to 1,532.91, Charts) rose about 0.7 percent.

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The tech-fueled Nasdaq composite (up 27.30 to 2,626.71, Charts) climbed 1 percent, and ended at a new six-year high.

For the week, the Dow gained 1.6 percent, the S&P 500 gained 1.7 percent and the Nasdaq gained 2.1 percent.

Stocks have been rising since Wednesday on bets that worries about rising inflation - which sapped the market last week - are overdone and that the Federal Reserve will not have to boost rates later this year, as had been feared.

Friday's economic news, especially the closely-watched "core" CPI report which came in below expectations, added to such bets.

A lot of interest rate fears were put to rest, according to Tony Dwyer, equity market strategist at FTN Midwest Research, "today's [core inflation] number reinforces that we're ok."

Worries about inflation had been exacerbated last week, when the benchmark 10-year note yield - which impacts mortgage and other consumer loans - began surging, eventually hitting 5.32 percent earlier this week, a five-year high.

But analysts say the stock selloff was also a mini-correction, with stocks pulling back a bit after the recent records. Right before the selloff, the Dow and S&P 500 both hit all-time highs.

Since then the Nasdaq has recovered all of last week's losses, while the Dow trails its previous high by nearly 37 points and the S&P 500 lags its record by less than a little over 6 points.

Intel (up $1.01 to $24.24, Charts, Fortune 500) rallied 4.4 percent on a Goldman Sachs upgrade, Reuters reported.

Intel was the the Dow's biggest gainer, joining DuPont (up $0.97 to $51.47, Charts, Fortune 500), Walt Disney (up $0.61 to $34.40, Charts, Fortune 500) and General Motors (up $1.06 to $34.66, Charts, Fortune 500) in leading the blue-chip barometer higher. In total, 25 of the 30 stocks rose.

Penn National Gaming (up $10.98 to $62.12, Charts) surged 22 percent after the casino operator agreed to be acquired by Fortress Investment Group and and Centerbridge Partners for $8.9 billion.

Meanwhile, Expedia (up $0.91 to $25.37, Charts) jumped 3.7 percent on buyout speculation, despite the company's denial.

A run up in oil prices boosted Sunoco (up $1.19 to $84.92, Charts, Fortune 500), BP (up $0.43 to $69.29, Charts), Exxon Mobil (up $1.17 to $85.94, Charts, Fortune 500) and other oil stocks, lifting the Amex Oil index by 1.7 percent.

U.S. light crude oil for July delivery climbed 35 cents to settle at $68 a barrel on the New York Mercantile Exchange, its highest level in nine months.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by close to four to one on volume of 2.04 billion shares. On the Nasdaq, advancers topped decliners two to one as nearly 2.5 billion shares changed hands.

In economic news, the Consumer Price Index (CPI), a measure of inflation at the retail level, rose 0.7 percent in May, the government said Friday, versus forecasts for a rise of 0.6 percent. But the more closely-watched "core" CPI, which strips out food and energy prices, rose just 0.1 percent, short of forecasts.

"The stock market got the number it wanted on the core and it rallied strongly, along with the bonds," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

On Thursday, "core" producer prices rose an in-line 0.2 percent in May, building on bets that price pressures are contained, despite the runup in gas prices. April inflation reports showed a similar moderating of prices.

A key measure of consumer sentiment slipped to a 10-month low in June, reflecting worries about high gas prices.

Separate reports showed that industrial production was flat, short of forecasts for a rise of 0.2 percent and following a rise of 0.2 percent in April. Capacity utilization slipped to 81.3 percent from 81.5 percent in the previous month. Economists thought it would rise modestly.

Treasury prices rose after the CPI reading, lowering the yield on the benchmark 10-year note to 5.17 percent from 5.22 percent late Thursday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar hit a four-and-a-half-year high against the yen after the Bank of Japan kept interest rates steady. The greenback pulled back against the euro after the CPI.

COMEX gold for August delivery added $2.80 to settle at $658.50 an ounce.