* August CPI index falls unexpectedly
* Fed begins two-day meeting
* Oil prices jump about 5 percent
* FedEx falls after cutting 2016 profit forecast
* Indexes up: Dow 0.66 pct, S&P 0.75 pct, Nasdaq 0.48 pct (Updates to early afternoon)
By Tanya Agrawal
Sept 16 (Reuters) - Energy stocks lifted Wall Street on Wednesday following a 5 percent jump in oil prices, even as investors braced for the Federal Reserve's decision on an interest rate hike.
If the Fed opts to end seven years of near-zero interest rates on Thursday, markets would be relieved of the uncertainty that has dogged them for months.
"The market is getting incrementally more comfortable that if the Fed is going to raise rates it's doing it for the right reasons," said John Canally, investment strategist at LPL Financial.
"We've been obsessing about it for so long and maybe its finally dawned on the market that the 'when' doesn't matter as much as how far and how fast the Fed will go."
Fed fund futures <0#FF:> see only a 30 percent chance that Janet Yellen and her colleagues will pull the trigger this week. Of the 80 economists polled by Reuters, only 35 said the central bank is likely to raise rates this week.
At 12:43 ET (1643 GMT) the Dow Jones industrial average was up 109.67 points, or 0.66 percent, at 16,709.52, the S&P 500 was up 14.81 points, or 0.75 percent, at 1,992.9 and the Nasdaq Composite was up 23.38 points, or 0.48 percent, at 4,883.90.
The gains were broad-based with all 10 major S&P sectors higher, with the energy index's 2.28 percent rise leading the advancers. Oil prices jumped about 5 percent after an unexpected drawdown in U.S. stockpiles. Chevron's 1.9 percent rise provided the biggest boost to the Dow.
"Oil is a pretty big intra-day driver for stock prices because the energy sector is a big chunk of earnings," said Canally.
Stocks have been volatile since China devalued its currency in August. The S&P 500 has had moves of at least 1 percent in 12 of the past 18 sessions.
On Tuesday, the CBOE Volatility index - popularly known as the "fear index" - closed above 22 for the 17th consecutive day, the longest it has lingered above that level in nearly four years. The long-term average is 20.
"The volatility will continue until the Fed takes control of the policy and does what they've been thinking about or talking about for the better part of two years," said John Brady, managing director at R.J. O'Brien & Associates in Chicago.
Data on Wednesday showed that U.S. consumer prices unexpectedly fell in August as gasoline prices resumed their decline and a strong dollar curbed the cost of other goods.
The consumer price index slipped 0.1 percent last month. Economists polled by Reuters had forecast the CPI would be unchanged in August.
The Fed will pay special attention to the labor market and inflation as it decides on a rate hike. While the job market has continued to gain strength, inflation remains below the 2 percent target set by the central bank.
The Organization for Economic Cooperation and Development trimmed its growth outlook for the global economy but said the United States is doing well enough that its central bank should go ahead with a rate increase.
Shares of Hewlett-Packard were up 4.8 percent at $28.40. The company said it would cut up to 33,300 jobs.
FedEx was down 3.9 percent at $147.95 after the package delivery company cut its 2016 profit forecast.
U.S.-listed shares of Anheuser-Busch InBev were up 7 percent at $115.59 after the world's biggest beer maker approached rival SABMiller about a takeover.
Molson Coors jumped 13 percent, while Altria, which owns a 27 percent stake in SABMiller, was up about 2 percent.
Advancing issues outnumbered decliners on the NYSE by 2,296 to 696. On the Nasdaq, 1,780 issues rose and 905 fell.
The S&P 500 index showed seven new 52-week highs and one new low, while the Nasdaq recorded 30 new highs and 21 new lows. (Reporting by Tanya Agrawal; Editing by Don Sebastian)