US stocks jumped on Wednesday, reversing a recent decline as traders responded enthusiastically to strong bank earnings and data indicating a slowdown in underlying inflation.

The Dow Jones Industrial Average closed up 1.7 percent at 43,221, while the broad-based S&P 500 jumped 1.8 percent to 5,949.

The day's largest gains came in the tech-rich Nasdaq Composite Index, which surged by 2.5 percent to end the day at 19,511.

US financial heavyweights including JPMorgan Chase and Goldman Sachs reported soaring profits Wednesday propelled by strength in trading and financial advisory services.

And fresh data showed headline inflation rose in the 12 months to December, but actually eased once volatile food and energy prices were stripped out, fueling optimism in the markets.

"There's a lot of relief from the (inflation) data this morning," Angelo Kourkafas from Edward Jones told AFP, noting there had been a positive reaction in the markets to the decline in the so-called "core" inflation measure.

Yields on long-dated US Treasurys including the popular two- and 10-year notes dropped sharply as investors piled back into bonds and pushed up prices, which move inversely to yields.

Among individual firms, Tesla's shares soared by 8.0 percent, as did those of Bank of New York Mellon after it reported strong quarterly earnings results. (AFP)