U.S. Federal Reserve policy makers fretted at their most recent meeting that growing inflation risks may require an interest rate hike, but agreed that the outlook for both prices and growth was still too uncertain, minutes of the meeting showed.

Stocks closed with huge gains as drop in oil prices boosted sectors previously battered by energy costs. Financials also moved sharply higher.

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.

Many economists have concluded that a second dose of government stimulus spending is required to prevent a broad economic unraveling and provide relief to millions of Americans grappling with joblessness, plunging home prices and tight credit.

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.

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.

Stocks closed lower following a zig-zag day marked by a plunge in oil and a barrage of statements and news from economic policy makers, and a resurgence for the beaten-down financial sector.

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.

Stocks fell sharply after Federal Reserve Chairman Ben Bernanke issued a dour forecast ahead for the US economy, saying more hard times are on their way that will pose a major challenge to policy makers.

The Treasury and the Federal Reserve should not bail out Fannie Mae and Freddie Mac as this would increase the already gaping U.S. public debt, investor Jim Rogers, CEO of Rogers Holdings, told "Worldwide Exchange."

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.