Federal Reserve Chairman Ben Bernanke told a House panel Wednesday a top Fed priority is restoring financial calm even as "too high" inflation and weak growth threaten the economy.

US industrial production unexpectedly rebounded in June by 0.5 percent, its biggest jump in nearly a year, as utility and mining output soared and manufacturing reversed two months of declines, the Federal Reserve said on Wednesday.

Consumer prices in June rose by the biggest amount since 1982 on a continued surge in gasoline prices, adding more weight to an economy struggling through a strained banking system and a housing downturn.

Stocks pushed higher as oil plunged for the second day in a row and financials staged an across-the-board rally that stemmed investor pessimism about the effects of inflation on the economy.

The dollar rose against the euro and yen Wednesday, moving further from Tuesday's record low against the euro, on positive earnings news from Wells Fargo and lower oil prices.

Housing finance giants Fannie Mae and Freddie Mac have the potential to pose systemic risks to the financial system and need a stronger regulator, U.S. Treasury Secretary Henry Paulson said on Tuesday.

President Bush urged lawmakers to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the nation's financial system to be "basically sound."

A weakening housing market, a strained banking system, and rising oil prices threaten the U.S. economy, and restoring financial market stability is a top priority, Fed Chairman Ben Bernanke said.

Dismal data on inflation and retail sales released on Tuesday flashed fresh signs of stagflation in the U.S. economy.

Soaring food and fuel prices pushed Britain's inflation rate to nearly double the central bank's 2 percent target in June, official data showed on Tuesday, boosting talk of interest rate hikes ahead.

Discussion of persistent financial market turmoil is seen as likely to overshadow the Federal Reserve's semi-annual monetary policy outlook when Fed Chairman Ben Bernanke testifies before Congress on Tuesday.

The Bank of Japan left interest rates on hold at 0.5% on Tuesday as expected but downgraded its growth forecasts, warning high energy costs are slowing the world's second largest economy.

Australia's central bank was growing more confident that interest rates were high enough to  retrain future inflation when it left rates unchanged at a 12-year high earlier this month, minutes of its July meeting showed on Tuesday.

The dollar rebounded from record lows versus the euro on Tuesday, supported by a sharp fall in crude oil prices and a rise in U.S. stocks.

An intervention to prop up the U.S. dollar is very likely if the greenback's slide continues, as U.S. policymakers' attitude towards a weak currency has shifted dramatically over the past year, a forex strategist tells CNBC Europe.