Wall Street stocks rallied yesterday as interest rates eased after an anxiously awaited report offered some unsettling signals on inflation but did not sound as loud an alarm as feared.

The Dow Jones industrial average rose 52.90 points to close at 5,659.86, after giving back part of a nearly 75 point jump earlier in the afternoon. Broader measures posted big gains as well.

Before the stock market opened, bonds had dived but they quickly snapped back as traders digested a report saying the unemployment rate in the US plunged to a seven year low of 5.1 per cent in August.

As bond prices fell, the yield on the 30 year Treasury bond a key determinant of corporate and consumer borrowing costs - crept closer to its year long high at 7.20 per cent.