US STOCKS-Oil's drop, techs' gain drive market higher

(Updates to close)

*Microsoft shares jump as Icahn seeks Yahoo control

*Oil pullback eases inflation worries

By Caroline Valetkevitch

NEW YORK, May 15 (Reuters) - U.S. stocks rose in light trading on Thursday as a pullback in oil prices eased concerns about inflation and a battle to control Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) boosted the tech sector.

The S&P 500 and Nasdaq had their highest closes since Jan. 3. News late in the session that key members of the U.S. Senate reached a deal on a housing rescue plan raised hopes late in the session for the beleaguered home market.

Crude oil futures settled slightly lower after sinking to below $122 a barrel during the session. Traders said a surprisingly large increase in U.S. natural gas inventories contributed to crude's fall.

Investors poured into technology stocks after financier Carl Icahn started a proxy battle to get control of Yahoo and force it to strike a deal with Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz).

Retailers benefitted after JC Penney Co Inc (JCP.N: Quote, Profile, Research, Stock Buzz) said its earnings in the current quarter could top analysts' forecasts. The outlook drove JC Penney's battered stock up 4.7 percent to $46.32 even though it posted a 50 percent profit drop in the first quarter. For details, see [ID:nN15204424]