A relatively benign U.S. reading on consumer price increases triggered a sharp relief rally in stocks and bonds on Wednesday, but traders and investors warn that markets are likely to remain anxious about the pace of inflation.

US stocks surged on Wednesday, fueled by a slowdown in core inflation and better-than-expected earnings from major banks. The Dow Jones Industrial Average rose by 804 points, or 1.9%, while the S&P 500 gained 2% and the Nasdaq Composite climbed 2.

New data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric eased for the first time since July. On a "core" basis, which strips out the more volatile costs of food and gas,

Excluding the volatile food and energy categories, so-called core inflation declined to 3.2%, after remaining stuck at 3.3% for three months in a row.

US consumer inflation rose for a third straight month in December as energy prices jumped but a widely watched measure eased slightly, raising hopes that underlying inflation may be moderating.