Stocks rallied while the dollar slumped against rival currencies after a drop in inflation dimmed expectations of more aggressive Federal Reserve rate hikes.
The consumer price index (CPI), a key measure of inflation, rose at annual pace of 7.7 percent in September.
That was below analyst expectations and a dip from the 8.2 percent rate in September.
The dollar plunged against the euro, pound and yen after the data was released, and US treasury bond yields also dropped.
European stocks, which had been lower in midday trading, shot higher.
Frankfurt stocks were up 2.9 percent in afternoon trading as Wall Street open, with Paris 1.6 percent higher and London rising 0.8 percent.
US stock futures also rocketed after the data was published, and at the opening bell the Dow jumped 2.5 percent higher.
The S&P 500 sprang up 3.7 percent and Nasdaq Composite soared 4.8 percent.
"Inflation has finally started to drop like a rock in the US and this is the best news that anyone can expect," said AvaTrade analyst Naeem Aslam.
"The Fed will still continue to increase the interest rate but there is no need to be aggressive about this -- which means that the pace of interest rate hikes will slow down now."
The Fed's main policy rate currently stands at between 3.75 to 4.0 percent, and investors have been keen on determining when policymakers will "pivot" away from aggressive hikes or "pause" them altogether.
Stuart Clark, portfolio manager at Quilter Investors, said the slowdown in inflation will provide some relief to consumers and investors, as well as "giving some momentum to the idea that the worst is now behind us."
But we're "not completely out of the woods yet," he added, pointing food and housing costs continue to rise.
Clark said "the Federal Reserve is going to remain in a hawkish mood for some time to come... the market will have to wait for any indication of a pivot or pause from the central bank."
- Covid and crypto -
Markets are grappling also with the impact of strict zero-Covid measures in China, with supply chains and activity slowed by harsh lockdowns and testing policies.
"China's domestic demand is weak and their key trading partners are entering recession territory," said Edward Moya at OANDA trading group.
Oil prices extended recent losses on weaker Chinese demand.
The crypto world has meanwhile been rocked by a surprise decision from Binance, the world's biggest cryptocurrency platform, to scrap a possible acquisition of rival FTX.com a day after disclosing it had signed a non-binding letter of intent to buy it.
The near-collapse of FTX has plunged bitcoin to a two-year low.
"FTX's slump from over a $32 billion valuation to zero in less than a few days raises numerous issues," said Stephen Innes at SPI Asset Management.
"Prominent investors are wearing eggs on their faces after diving in head first."
He added that gold and silver would be the biggest beneficiaries of the crypto fallout with investors looking to the trusted precious metals for stability.
- Key figures around 1330 GMT -
London - FTSE 100: UP 0.8 percent at 7,355.53 points
Frankfurt - DAX: UP 2.9 percent at 14,057.12
Paris - CAC 40: UP 1.6 percent at 6,533.37
EURO STOXX 50: UP 2.4 percent at 3,817.93
New York - Dow: UP 2.5 percent at 33,328.77
Tokyo - Nikkei 225: DOWN 1.0 percent at 27,446.10 (close)
Hong Kong - Hang Seng Index: DOWN 1.7 percent at 16,081.04 (close)
Shanghai - Composite: DOWN 0.4 percent at 3,036.13 (close)
Euro/dollar: UP at $1.0131 from $1.0017 Wednesday
Pound/dollar: UP at $1.1642 from $1.1352
Dollar/yen: DOWN at 143.15 yen from 146.37 yen
Euro/pound: DOWN at 87.20 pence from 88.19 pence
West Texas Intermediate: DOWN 0.5 percent at $85.41 per barrel
Brent North Sea crude: DOWN 0.1 percent at $92.55 per barrel