Updates before market open

By Twesha Dikshit and Utkarsh Hathi

May 28 (Reuters) - Wall Street's main indexes were set to open flat on Thursday as escalating tensions between the U.S. and Iran dampened hopes of an imminent peace deal, while investors digested key inflation data.

Tehran targeted a U.S. airbase on Thursday after Washington launched fresh strikes. The move came hours after President Donald Trump rejected a report that he was close to a compromise deal with Iran.

Oil prices jumped over 2%, while U.S. Treasury yields edged higher with the continued closure of the Strait of Hormuz adding to inflation worries.

Data showed U.S. inflation increased at its fastest pace in three years in April, driven by higher energy prices amid the Iran war.

"I don't think the data changed the narrative. The number was not as bad as feared. That pushes back a little bit against some expectations for rate hikes," said Angelo Kourkafas, senior global investment strategist at Edward Jones.

"A lot of the focus will still be on the Iran negotiations and the AI trends and these are the two things that (will) drive the narrative for equities."

At 08:54 a.m. ET, Dow E-minis YMcv1 were down 75 points, or 0.15%, S&P 500 E-minis EScv1 were down 1 points, or 0.01%, and Nasdaq 100 E-minis NQcv1 were up 16.5 points, or 0.05%.

AI OPTIMISM, EARNINGS GROWTH FUEL MARKET RALLY

Renewed confidence in AI and earnings growth momentum have underscored the recent rally, with all three major indexes closing at a record high on Wednesday.

The S&P 500 .SPX was on track for a ninth consecutive weekly gain, its longest winning streak since December 2023.

Before the bell, Marvell Technology MRVL.O rose 4.6% after first-quarter results. The company's shares have more than doubled so far this year.

Snowflake SNOW.N soared 37% after the data analytics firm lifted its annual product revenue forecast and announced a five-year AI infrastructure deal worth $6 billion with Amazon Web Services AMZN.O.

Peers Datadog DDOG.O, and MongoDB MDB.O rose 3.8% and 9.4%, respectively.

Dollar Tree DLTR.O climbed 17% after the discount retailer lifted its full-year profit forecast, while Best Buy BBY.N added 20% after the electronics vendor forecast second-quarter sales above estimates.

Kohl's KSS.N gained 16.8% after the department store chain posted quarterly sales in line with estimates, and stuck to its annual targets.

Drone companies rose after the Wall Street Journal reported that the Trump administration was in talks to fund drone firms. Unusual Machines UMAC.A jumped 28.1% while AeroVironment AVAV.O and Kratos Defense & Security Solutions KTOS.O added 9.3% and 13.3%, respectively.