Asian markets rallied Thursday as investors breathed a sigh of relief after data showed US inflation finally easing from a four-decade high, giving the Federal Reserve some room to slow down its pace of interest rate hikes.

The below-forecast reading on consumer prices came on the back of a sharp drop in energy costs and provided a much-needed boost to risk assets across the board.

Wall Street enjoyed a surge that saw the Nasdaq pile on more than two percent and push it into a technical bull market -- having spiked more than 20 percent from its June lows -- while the dollar dropped against its peers.

And Treasury yields -- a gauge of future interest rates -- dropped.

Trading floors had been nervous going into Wednesday's release, as many had feared a forecast-topping figure would beef up pressure on the Fed to announce another bumper rate hike at its September meeting.

Fears that the bank's monetary tightening drive would send the world's top economy into recession have dragged markets lower for months, with the mood already darkened by several issues including the Ukraine war, supply chain snarls and worsening China-US relations.

The positive energy from New York filtered through to Asia, where Hong Kong, Seoul, Taipei and Manila all rose more than one percent, while Shanghai, Sydney, Singapore, Wellington and Jakarta were also well up.

But while sentiment was positive, analysts warned against getting over-excited as inflation was still high and would take some time to get under control.

"We still need to see a couple more monthly decreases in underlying inflation before the (Fed) can start to think about pausing its tightening cycle," Carol Kong, of Commonwealth Bank of Australia, told Bloomberg Television.

"The market is still currently underestimating US inflation and how sticky it will be over the medium term."

Meanwhile, Fed officials were out trying to temper expectations that they might start reducing borrowing costs as soon as next year.

Minneapolis Fed boss Neel Kashkari warned "we are a long way away from saying that we're anywhere close to declaring victory", while Chicago bank boss Charles Evans added rates would continue to rise for "the rest of this year and into next year".

Investors will be hanging on further comments from policymakers over the next weeks for an idea about the pace of rate hikes, with a still-strong jobs growth showing the economy remained resilient despite higher borrowing costs and inflation.

"Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening," said Oliver Blackbourn, of Janus Henderson Investors.

"However, the Fed will doubtless be focused on the signs about underlying inflation, particularly against a very tight-looking labour market."

And Christian Hoffmann, at Thornburg Investment Management, added: "We should not be surprised to see Fed speakers continue to try to talk down the market and risk assets."

Oil prices edged down as demand expectations continued to be sapped by worries about a recession, with both main contracts around six-month lows and below their pre-Ukraine war levels.

The selling was also being fed by data showing US stockpiles at their highest levels since December thanks to a pick-up in domestic output, while some flows to three European countries from Russia resumed after a payment dispute linked to sanctions was resolved.

Hong Kong - Hang Seng Index: UP 1.2 percent at 19,841.96

Shanghai - Composite: UP 0.4 percent at 3,242.21

Tokyo - Nikkei 225: Closed for a holiday

Dollar/yen: UP at 133.09 yen from 132.89 yen Wednesday

Euro/dollar: DOWN at $1.0286 from $1.0299 Wednesday

Pound/dollar: DOWN at $1.2191 from $1.2213

Euro/pound: UP at 84.37 pence from 84.29 pence

West Texas Intermediate: DOWN 0.3 percent at $91.67 per barrel

Brent North Sea crude: DOWN 0.3 percent at $97.14 per barrel

New York - Dow: UP 1.5 percent at 33,309.51 (close)

London - FTSE 100: UP 0.3 percent at 7,507.11 (close)