Shares, bonds and the dollar gained after it emerged that factory prices rose less than expected last month, allaying market jitters just two weeks before the Federal Reserve meets to consider interest rates.
The producer price index rose 0.2 per cent in July, less than the 0.3 per cent rise forecast by US economists. The figures, while reassuring, did not dislodge the consensus among economists that the Fed will announce a pre-emptive rate hike when it meets on 24 August.
David Blitzer, chief economist at Standard & Poor's in New York, said the Fed would look at the general economy, not just at individual indices of inflation. "There's no question they'll still raise rates on 24 August," he told Reuters television. "It depends less on inflation than on the overall pace of the economy."
President Bill Clinton implicitly acknowledged the apprehension in advance of this month's rate decision in a highly unusual television interview before the figures were released. Mr Clinton, who habitually steers clear of statements that could affect the markets, offered a series of reassurances apparently intended to calm market jitters in the light of recent adverse indicators - rises in retail prices and wages, a stock market retreat, and a recent fall in the dollar against the yen and the euro.
Asked whether evidence of increasing wages could fuel inflation, Mr Clinton replied: "I don't think there's any evidence of that now," citing intense competition and productivity increases.
"I think people are ... earning their pay increases and they've worked hard for them and, so far, I don't think there is evidence of inflation."
The financial markets responded sharply. By midday the Dow Jones was ahead 150 points or 1.4 per cent. Against the yen, the dollar surged to 116.20 yen - a two week high - up from 115.29 yen on Thursday and a low of 114.71 yen earlier yesterday.
The euro lost a cent against the dollar slipping to $1.0575 from $1.0674 at the previous close. The benchmark 30-year Treasury bond rose while the yield, which moves in the opposite direction, dropped to 6.12 per cent from 6.27 per cent.