The Dow Jones industrial average soared yesterday amid news that inflation has remained mild despite persistent pricing pressures. Broader stock indicators also posted sharp gains after the labour department reported that consumer prices rose just 0.2 per cent last month despite the biggest jump in gasoline prices since the Gulf crisis in 1990.

The data ignited the bond market, where interest rates fell to their lowest level since late July - just before a series of robust economic readings that spurred inflation worries and sent stock sliding from record levels.

Bonds extended their gains in the afternoon after a private research group reported that retail sales slipped in the first two weeks of September, further soothing fears that heavy consumer demand would aggravate inflationary pressures at the nation's factories. As further proof that economic activity remains brisk, the Federal Reserve reported that industrial production shot up 0.7 per cent in August.