Industrial output rose in December as manufacturing rebounded at its strongest pace in a year, further evidence the economy ended 2011 on a firmer footing.

Other data on Wednesday showed inflation pressures remained in check, with wholesale prices slipping last month, which should give the Federal Reserve room to respond to an anticipated slowdown in growth in the first half of this year.

Industrial production increased 0.4 percent last month, the Federal Reserve said, after falling 0.3 percent in November. Economists had expected industrial output to rise 0.5 percent.

It shows the economy is continuing to move ahead. So more signs of moderate economic growth. It's validation the economic expansion continues, said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Separately the Labor Department said its seasonally adjusted index for prices received by farms, factories and refineries fell 0.1 percent.

Economists polled by Reuters had expected wholesale prices to increase 0.1 percent.

Excluding volatile food and energy, core producer prices rose 0.3 percent last month, fueled by a big gain in prices for light motor trucks. It was the biggest rise since July and above economists' expectations for a 0.1 percent gain.

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Graphic on industrial output: http://link.reuters.com/rac26s

Graphic on producer prices: http://link.reuters.com/gac26s

Graphic on mortgage market index: http://link.reuters.com/wah44s

Graphic on U.S. capital flows: http://link.reuters.com/bec26s

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The industrial output report indicated the production side of the economy ended the year on a firmer footing, with manufacturing output rising 0.9 percent after contracting 0.4 percent in November.

For the fourth quarter as a whole, industrial output rose at an annual rate of 3.1 percent, increasing for the 10th consecutive quarter.

Manufacturing has been one of the main drivers of growth in the U.S. economy since the end of the 2007-09 recession. The economy is expected to have expanded at an annual pace of at least 3 percent in the fourth quarter.

But with the euro zone expected to slide into recession in the first half of the year, slowing export growth is seen taking some edge off manufacturing.

A drop in energy prices held back wholesale inflation last month and the U.S. Federal Reserve is forecasting inflation will cool in coming months.

Inflation is not on the Fed's radar screen and it certainly should stay at or below its 2 percent target this year. The Fed is more concerned about the slowness of the recovery and lack of job creation, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

Energy costs for businesses fell 0.8 percent last month, with gasoline down 2.3 percent. Food prices fell 0.8 percent.

That brought the 12-month reading for producer price inflation down to 4.8 percent, a bigger drop than expected after coming in at 5.7 percent in November.

At the same time, higher core prices - if eventually passed on to consumers by businesses - might make the U.S. central bank more cautious about taking additional steps to help the still-struggling U.S. economy.

The real surprise here was that the core was up (but) overall the report is still relatively benign, said Jacob Oubina, an economist at RBC Capital Markets in New York.

Core prices rose 3.0 percent in the 12 months through December, up from the previous month.

U.S. stocks were trading higher, helped by financial shares after investment firm Goldman Sachs' quarterly profits topped views. Treasury debt prices declined.

About 30 percent of the month-on-month gain in core prices was due to an increase in prices for light motor trucks, the Labor Department said.

Prices in auto sector have been affected in recent months by floods in Thailand that last year disrupted supply chains. Prices for light trucks rose 0.9 percent last month, the biggest rise since July.

(Additional reporting by Lucia Mutikani in Washington and Emily Flitter and Julie Haviv in New York)

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