US consumer prices increased more than expected in September

New York (AFP) - Wall Street stocks finished a topsy-turvy session with strong gains Thursday following disappointing inflation data, while the pound rallied and the yen hit a new multi-decade low.

US consumer prices rose 0.4 percent in September compared to August, twice the 0.2 percent projected by analysts, even as the annual increase in the consumer price index slowed slightly to 8.2 percent from 8.3 percent.

The data are the latest sign inflation is becoming more ingrained in the US economy, despite numerous Federal Reserve actions to counter the trend.

US stocks initially plummeted on the report, which exacerbated recession worries on the increased odds of more aggressive Fed interest rate increases.

But equities soon reversed course, working their way back into positive territory by late morning and rising from there.

The broad-based S&P 500 ended 2.6 percent higher, joined in positive territory by bourses in Paris and Frankfurt that had earlier closed up at least one percent.

The early action after the inflation report was “knee-jerk” selling, said analyst Patrick O’Hare, adding that the inflation data – while disappointing – was not shocking given other recent economic reports.

The initial reversal was due to technical trading factors. When stocks refused to drop below a key trading level, they did a 180-degree turn and pushed higher.

“Maybe now there’s a bottom in place for the time being,” O’Hare said.

Also on Thursday, the British pound soared against the dollar and other currencies amid media speculation the government may cut back on its fiscal stimulus plans and increase corporate taxes in its latest policy U-turn.

The IMF reiterated its criticism of the new British government’s policies, with Chief Kristalina Georgieva calling for “coherent and consistent” measures.

Throughout this week’s meetings of finance chiefs in Washington, the IMF has stressed that the priority was for central banks to control inflation with monetary policy tightening and for governments to keep their budgets tight.

“Our message to everybody, not just to the UK, to everybody at this time: fiscal policy should not undermine monetary policy,” Georgieva said.

The Japanese yen on Thursday also hit its lowest level against the dollar since 1990 after the US inflation data, a reflection of the gulf between the US and Japanese central banks in monetary policy.

“The Bank of Japan continues to keep monetary policy easy because inflation and wages remain relatively low” in Japan, said Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.

- Key figures around 2100 GMT -

New York - Dow: UP 2.8 percent at 30,038.72 (close)

New York - S&P 500: UP 2.6 percent at 3,669.91 (close)

New York - Nasdaq: UP 2.2 percent at 10.649.15 (close)

London - FTSE 100: UP 0.4 percent at 6,850.27 (close)

Frankfurt - DAX: UP 1.5 percent at 12,355.58 (close)

Paris - CAC 40: UP 1.0 percent at 5,879.19 (close)

EURO STOXX 50: UP 0.9 percent at 3,362.40 (close)

Tokyo - Nikkei 225: DOWN 0.6 percent at 26,237.42 (close)

Hong Kong - Hang Seng Index: DOWN 1.9 percent at 16,389.11 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,016.36 (close)

Pound/dollar: UP at $1.1333 from $1.1100 Wednesday

Dollar/yen: UP at 147.22 yen from 146.91 yen

Euro/dollar: UP at $0.9780 from $0.9703

Euro/pound: DOWN at 86.28 pence from 87.41 pence

Brent North Sea crude: UP 2.3 percent at $94.57 per barrel

West Texas Intermediate: UP 2.1 percent at $89.11 per barrel