Updated from 8:59 a.m. EDT

Wholesale prices rose at a faster-than-expected clip last month, the Labor Department said, as the cost of many petroleum-related products reversed an early-year decline and rose. Excluding those, however, prices charged by producers increased at their slowest pace of the year last month.

A separate report showed a fall in the annualized number of housing starts last month.

The producer price index rose 0.5% in March, reversing a 1.4% decline the month before. Stripping out food and energy prices, the so-called core PPI was up just 0.1%. A survey of economists was calling for a 0.4% rise in the headline print and a 0.2% gain in the core number.

Interest rate-obsessed stock and bond traders read the report optimistically, evidently believing the soft reading on core inflation hurts the case for two or more hikes in the fed funds rate. Index futures recently showed the

S&P 500

trading 5 points above fair value, while the 10-year Treasury yield fell to 4.98%.

A strong headline number was expected after the big runup in oil prices during the first quarter. That trend continued Tuesday, with front-month crude recently trading at an all-time high of $70.85 a barrel. Crude prices are now roughly even with their levels after hurricanes Katrina and Rita devastated the Gulf Coast.

According to the Labor Department, prices for "finished energy" products rose 1.8% in March, while gasoline prices soared 9.1%. Food prices rose 0.5% last month.

The benign reading on core wholesale inflation reflected lower prices for goods such as technology hardware and a 0.1% rise in the cost of capital equipment.

Meanwhile, the Commerce Department said housing starts came in at an annual pace of 1.96 million units, down 7.8% from February. Building permits also fell, to a rate of 2.059 million. On average, economists had been forecasting starts at 2.025 million and permits at 2.10 million.