Stock markets and the dollar advanced Wednesday with all eyes on the latest US inflation reading as countries battle high prices.

US Federal Reserve chief Jerome Powell on Tuesday said he was determined to rein in runaway inflation, a day ahead of an official update on cost pressures in the world's biggest economy.

Meanwhile data out of China on Wednesday showed the country's inflation had eased, handing policymakers room for measures to kickstart its stuttering economy including interest rate cuts, according to analysts.

"As optimism rises over the economy, inflation remains a key concern and today we could see a new multi-decade high for US consumer prices," noted Fawad Razaqzada, analyst at ThinkMarkets.

"If CPI comes in hotter than anticipated this could even derail the two-day Nasdaq rally as it would cement (US) rate hike expectations further."

But he added that weaker-than-expected US inflation data should boost equities further, with European and Asian stocks enjoying solid gains Wednesday.

Powell on Tuesday said that inflation was "very near the top of the list" of risks to the economic outlook.

Prices are currently rising at their fastest pace in decades owing to a number of pressures including surging wage growth, supply chain snarls and high energy costs.

The Fed expects a "return to normal supply conditions" in the coming months, Powell said, but "if we see inflation persisting at high levels longer than expected... we will use our tools to get inflation back".

"Jerome Powell telling the congressional hearing that the US economy will be able to withstand the combination of Omicron and the Fed tightening was music to Wall Street's ears," said Matt Simpson of StoneX Financial.

"And with markets getting too used to the idea of inflation being rampant, perhaps expectations (for much higher inflation) are ahead of themselves."

While most observers expect equities to endure some tough times in the near future, they remain broadly upbeat about the outlook for this year.

Oil prices extended Tuesday's rally after Energy Information Administration ramped up its 2022 projection by $5 a barrel
Oil prices extended Tuesday's rally after Energy Information Administration ramped up its 2022 projection by $5 a barrel GETTY IMAGES NORTH AMERICA via AFP / MARIO TAMA

London - FTSE 100: UP 0.7 percent at 7,541.22 points

Frankfurt - DAX: UP 0.3 percent at 15,989.45

Paris - CAC 40: UP 0.4 percent at 7,212.15

EURO STOXX 50: UP 0.6 percent at 4,305.03

Tokyo - Nikkei 225: UP 1.9 percent at 28,765.66 (close)

Hong Kong - Hang Seng Index: UP 2.8 percent at 24,402.17 (close)

Shanghai - Composite: UP 0.8 percent at 3,597.43 (close)

New York - DOW: UP 0.5 percent at 36,252.02 (close)

Euro/dollar: DOWN at $1.1356 from $1.1371 late Tuesday

Pound/dollar: DOWN at $1.3630 from $1.3637

Euro/pound: DOWN at 83.31 pence from 83.38 pence

Brent North Sea crude: UP 0.6 percent at $84.19 per barrel

West Texas Intermediate: UP 0.8 percent at $81.86 per barrel