The political crisis in Italy took center stage, with investors concerned over its implications for the rest of the euro zone. The euro meanwhile struck the lowest level against the dollar since last July.
The Dow Jones index jumped 306 points, or 1.3 per cent to 24,668 - a strong gain, but not quite enough to erase yesterday's sell-off.
The Nasdaq composite fell 37.26 points, or 0.5 percent, to 7,396.59.
The core inflation, which excludes the volatile energy and food prices, recorded at 1.1 percent, compared with 0.7 percent in the previous month.
Earlier on Thursday, German magazine Wirtschaftswoche reported that U.S. President Donald Trump wanted to block German luxury cars from the U.S. market.
In a move that raised the possibility of a snap election in Italy, President Sergio Mattarella rejected the coalition's nomination of Paolo Savona as finance minister.
"Italy failing to form a government, the markets were on edge and it happened to just crack and perhaps the reaction was a little bit out-sized", Aaron Clark, portfolio manager at Boston-based GW&K Investment Management, said by phone. Market watchers expect him to lose the vote and new elections to be called shortly after. South Korea's Kospi dropped 2.0 per cent to 2,409.03.
In the eurozone, Frankfurt's DAX 30 gained 0.1 percent to 12,796.16 points and the Paris CAC 40 won 0.3 percent to 5,440.95.More news: Canada's PM blasts Trump over 'national security' tariffs
Adding to the selling pressure was a brewing crisis in Spain, where Prime Minister Mariano Rajoy faces a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial. The Spanish IBEX 35 sank 2.5 percent. The dollar slipped and oil rose.
"The risk to the euro is predominantly political in the near term", Alvin Tan, a currency strategist at Societe Generale, said, adding the euro would likely stay capped at $1.15 or $1.16 until the Italian political crisis was resolved. Bond prices move inversely to yields.
Having fallen nearly 3% on Tuesday, Italy's benchmark share index, the FTSE MIB is up more than 2% early on Tuesday afternoon, while other European bourses are seeing gains of as much as 1%.
Although risk aversion has the ability to support gold in the short term, an appreciating dollar and expectations of higher USA interest rates are likely to continue weighing heavily on the yellow metal in the medium to longer term.
In the USA the prices of some of the biggest banks like Bank America and JPMorgan were down 4% at one stage as Wall Street fell deeper into the red.
Rising U.S. oil supplies have helped pushed the spread between Brent and U.S. crude CL-LCO1=R to almost $9 a barrel, its widest since March 2015 because of the depressed price of U.S. crude compared with Brent.
Oil struggled under pressure from expectations that Saudi Arabia and Russian Federation would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as United States output has surged in recent years.
Brent crude used to price global oils, shed 38 cents to $75.11 a barrel in London. The company halted essential spending on the project and said it would cancel it altogether if the national and provincial governments could not guarantee it. Hong Kong's Hang Seng rose more than 1% and MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8% as it clambered off near two-month lows.