Stocks bounded higher Wednesday as investors shrugged off a fresh indicator of rising inflation and welcomed an $11 billion deal that combines retailers Kmart and Sears. Climbing oil prices kept a lid on gains, however, in light of a potential heating oil supply crunch.

Kmart's acquisition of Sears, along with strong data on industrial production and a jump in housing construction, overshadowed a worrisome reading of the consumer price index, the government's most closely watched inflation barometer. The latest inflation data followed a 1.7 percent increase in the producer price index, which sent stocks falling Tuesday.

The Dow Jones industrial average rose 61.92, or 0.6 percent, to 10,549.57. The Standard & Poor's 500-stock index rose 6.51, or 0.6 percent, to 1181.94. The Nasdaq composite index climbed 21.06, or 1.0 percent, to 2099.68.

Rising costs for energy and food sent the consumer price index up 0.6 percent in October, the biggest advance in five months. Analysts said the Labor Department's latest snapshot of the inflation climate makes it more likely that the Federal Reserve will raise interest rates when policymakers next meet, on Dec. 14.

Separately, industrial production shot up 0.7 percent, a reading that suggests the sector is gaining momentum. Home builders showed strength after the Commerce Department reported a 6.4 percent jump in housing construction last month.

Kmart rose $7.78, or 7.7 percent, to $109.00, on its plan to acquire Sears, a deal that will create the nation's third-largest retailer. Sears stock soared, rising $7.79, or 17.2 percent, to $52.99.

Other retailers posted declines on the news. Wal-Mart shed 65 cents, to $56.24; Home Depot fell 72 cents, to $42.28; and Target dropped 36 cents, to $51.02.

Martha Stewart Living Omnimedia rose $1.09, to $18.49, as investors bet the merger would lead to a broader merchandising agreement. Kmart sells Martha Stewart products in the United States, while Sears sells them in Canada.

Other Indicators

* The New York Stock Exchange composite index rose 54.16, to 7013.46; the American Stock Exchange index rose 16.76, to 1365.96; and the Russell 2000 index of smaller-company stocks rose 5.08, to 622.97.

* Advancing issues outnumbered declining ones by 9 to 4 on the NYSE, where trading volume rose to 1.68 billion shares, from 1.36 billion on Tuesday. On the Nasdaq Stock Market, advancers outnumbered decliners by 2 to 1 and volume totaled 2.21 billion, up from 1.89 billion.

* The price of the Treasury's 10-year note rose $5.94 per $1,000 invested, and its yield fell to 4.14 percent, from 4.21 percent on Tuesday.

* The dollar fell against the Japanese yen and the euro. In late New York trading, a dollar bought 104.06 yen, down from 105.38 late Tuesday, and a euro bought $1.3040, up from $1.2960.

* Light, sweet crude oil for December delivery settled at $46.84, up 73 cents, on the New York Mercantile Exchange.

* Gold for current delivery rose to $444.80 a troy ounce, from $440.20 on Tuesday, on the New York Mercantile Exchange's Commodity Exchange.