NEW YORK, New York - U.S. stocks rose sharply on Wednesday despite the latest reading that inflation in the United States is still running at 8.5 percent.

The U.S. dollar conversely dropped like a stone

"The Consumer Price Index for All Urban Consumers was unchanged in July on a seasonally adjusted basis after rising 1.3 percent in June, the U.S. Bureau of Labor Statistics reported Wednesday. "Over the last 12 months, the all items index increased 8.5 percent before seasonal adjustment."

The figure would have been significantly higher if not for gasoline prices which fell 7.7 percent in July.

"Inflation at 8.5 percent is still very high, but there is optimism that perhaps June was the peak," Randy Frederick, vice president of trading and derivatives for Charles Schwab told Reuters Wednesday.

The biggest winner was the Nasdaq Composite which accelerated 360.88 points or 2.89 percent to 12,854.60.

The Dow Jones industrials surged 535.10 points or 1.63 percent to 33,309.51.

The Standard and Poor's 500 gained 87.77 points or 2.13 percent to 4,210.24.

On foreign exchange markets, the U.S. dollar recorded sharp falls. The euro surged to 1.0302 by the New York close Wednesday. The British pound jumped to 1.2203. The Japanese yen was sharply higher at 132.93. The Swiss franc advanced to 0.9428.

The Canadian dollar was in demand at 1.2776. The U.S. dollar gained more than a cent to 0.7080. The New Zealand dollar soared to 0.6404.

Overseas, the CAC 40 in Paris climbed 0.57 percent. The German Dax jumped 1.23 percent. In London, the FTSE 100 rose 0.25 percent.

In Hong Kong, the Hang Seng tumbled 392.60 points or 1.96 percent to 19,610.84..

In Japan, the Nikkei 225 dived 180.63 points or 0.65 percent to 27,819.33.

China's Shanghai Composite dropped 17.41 points or 0.54 percent to 3,230.02.

The Australian All Ordinaries declined 39.90 points or 0.55 percent to 7,238.70.

In New Zealand, the S&P/NZX 50 fell 1.39 points or 0.01 percent to 11,752.09.

South Korea's Kospi Composite retreated 22.58 points or 0.90 percent to 2,480.88.