European and US stocks rebounded Wednesday from the previous day's sharp losses, as dealers went fishing for bargains, digested lower-than-expected UK inflation and shrugged off equity losses elsewhere.

Equities on both sides of the Atlantic tumbled on Tuesday after data showed that US inflation had slowed less than expected in January. That dealt a body blow to hopes of an early Federal Reserve interest rate cut and sent Asia indices mostly lower on Wednesday.

But European indices climbed in Wednesday trading and Wall Street also opened higher, coming off losses of more than one percent.

"The prevailing feeling is that yesterday’s knee-jerk reaction may be enough to reset equity markets following their near-uninterrupted bullish run since October last year," said David Morrison, senior analyst at Trade Nation.

Wall Street's top stock indices have struck new highs in recent months on expectations that the Fed will begin cutting interest rates and the stellar earnings from tech firms.

Morrison said "bullish sentiment prevails thanks to the robustness of the US economy and the health of the employment situation across the US, UK and eurozone."

The January consumer price index showed that US inflation is coming down, even if not as fast as markets had hoped.

That and other data support the outlook that the US economy will escape falling into a recession despite the Fed hiking high interest rates to restrain rising prices.

Morrison said that markets now expected the Fed to begin cutting rates in the middle of this year, and to make fewer cuts.

Eyes are now on US producer price data due at the end of the week.

Data released Wednesday showing UK inflation held at 4 percent in January has helped offset some concern about the delayed cut in US interest rates, said OANDA analyst Craig Erlam.

The data undershot expectations but was double the Bank of England's target.

"It's all about progress towards the goal of two-percent inflation and (interest) rates falling -- and today is another encouraging step toward that," Erlam told AFP.

The fading prospect of a dovish turn by the Fed sent the dollar surging against the yen, forcing Japanese officials to warn they would intervene in foreign exchange markets to support the country's currency.

Expectations for a US rate cut have been doused in recent weeks by a series of strong indicators -- particularly on the economy and jobs -- while several monetary policymakers warned they want to see more data before shifting.

Asian traders ran for cover following the US inflation data, with Tokyo, Sydney, Singapore, Seoul, Wellington, Mumbai and Bangkok well down on Wednesday.

Hong Kong rallied, however, as it reopened after an extended break for the Lunar New Year.

Tech giants led the way on hopes China's leaders will announce further measures to support the country's markets and stuttering economy.

Key figures around 1430 GMT

New York - Dow: UP 0.3 percent at 38,400.75 points

New York - S&P 500: UP 0.6 percent at 4,982.87

New York - Nasdaq Composite: UP 0.8 percent at 15,781.30

London - FTSE 100: UP 0.8 percent at 7,569.87 

Paris - CAC 40: UP 0.6 percent at 7,667.38

Frankfurt - DAX: UP 0.2 percent at 16,920.25

EURO STOXX 50: UP 0.3 percent at 4,704.85

Tokyo - Nikkei 225: DOWN 0.7 percent at 37,703.32 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 15,879.38 (close)

Shanghai - Composite: Closed for holiday

Euro/dollar: UP at $1.0718 from $1.0709 on Tuesday

Dollar/yen: DOWN at 150.56 yen from 150.80 yen

Pound/dollar: DOWN at $1.2559 from $1.2592 

Euro/pound: UP at 85.34 pence from 85.04 pence

Brent North Sea Crude: UP 0.5 percent at $83.16 per barrel

West Texas Intermediate: UP 0.5 percent at $78.25 per barrel