By Sinéad Carew and Twesha Dikshit

Feb 13 (Reuters) - U.S. stocks rose modestly on Friday after a choppy start to the day while cooling inflation data supported bets that the Federal Reserve will cut interest rates and technology shares stabilized after roller-coaster sessions fueled by fears of AI-driven disruption.

With the technology index coming off the previous session's loss of 2.7%, the S&P 500 was eying its biggest weekly decline since December, with the Dow on track for its deepest weekly loss since November. The technology-heavy Nasdaq was angling for its second straight weekly loss of more than 1%.

Data on Friday showed U.S. consumer prices increased less than expected in January, prompting traders to slightly raise the odds of a 25 basis point interest-rate cut in June to 50.2% from 48.9% and increase bets for a 2 notch drop to 16% from $12.6%, according to the CME Group's FedWatch tool.

"The bottom line is, this is a good number. It suggests that we're still away from the Fed target of 2%, but inflation is not accelerating and perhaps maybe we're beginning to see some daylight in terms of the tariff inflationary aspect of it. It's still evident, but it's moderating," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

At 2:28 p.m. the Dow Jones Industrial Average rose 161.40 points, or 0.33%, to 49,613.38, the S&P 500 gained 32.89 points, or 0.48%, to 6,865.65 and the Nasdaq Composite gained 78.72 points, or 0.35%, to 22,675.87. 

Equity markets have pulled back from record levels recently of AI-led disruption fueled a selloff in sectors spanning software and insurance to trucking companies. However the S&P 500 software and services index was up more than 1% on Friday while the S&P 500 tech sector was edging up 0.06%.

Friday's inflation data encouraged investor hopes for Fed rate cuts after Wednesday's  stronger-than-expected January jobs data sowed doubts.

But against the backdrop of AI worries, looming U.S. mid-term elections in November and Fed Chair Jerome Powell expected to be replaced by Kevin Warsh in May, Phil Orlando, chief market strategist at Federated Hermes predicted more choppy trading ahead.

"In the data this morning inflation was better than expected and we think the trajectory continues to work lower," said Orlando. He added that historically when a Fed leadership transition happens in a mid-term year, the market has hit a "double-digit air-pocket every time that's occurred."

Speaking of volatility,  Cboe's volatility index, also known as Wall Street's fear gauge, hit a one-week high of 22.40 points earlier in the day before falling to a low of 18.92. It was last down 1.21 points at 19.59. 

Megacap tech stocks were a mixed bag with Nvidia providing the biggest drag followed by Apple Inc while Applied Materials and Microsoft were the biggest boosts.

Defensive utilities and real estate sectors were the S&P 500's biggest gainers among its 11 major industry indexes 

Healthcare was also a boost with Dexcom and Moderna both rising more than 8% after their fourth-quarter earnings report.  

Applied Materials  shares advanced 9.4% after the chipmaking-equipment firm forecast second-quarter revenue and profit above Wall Street expectations.

Networking equipment provider Arista Networks gained 5.7% after forecasting annual revenue above expectations.

White House trade adviser Peter Navarro said there was no basis to reports that the administration was planning to reduce steel and aluminum tariffs.

Still some steelmakers dropped, with Nucor slipping 2.8% and Steel Dynamics losing 3.8%. Also Aluminum producer Alcoa fell more than 1% while Century Aluminum tumbled more than 9%.

Advancing issues outnumbered decliners by a 3.27-to-1 ratio on the NYSE where there were 350 new highs and 74 new lows. On the Nasdaq, 3,442 stocks rose and 1,226 fell as advancing issues outnumbered decliners by a 2.81-to-1 ratio. 

The S&P 500 posted 34 new 52-week highs and 6 new lows.

(Reporting by Sinéad Carew in New York, Johann Cherian, Twesha Dikshit, Purvi Agarwal and Medha Singh in Bengaluru; Editing by Shilpi Majumdar, Pooja Desai and David Gregorio)