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Industrial output rebounded 0.4 percent, the Federal Reserve said on Wednesday, the latest data to suggest the recovery gained momentum in the fourth quarter.

However, with inflation barely rising, economists said the pick-up in economic activity was insufficient to discourage the Fed from completing its planned purchase of $600 billion in government bonds to keep borrowing costs tamped down, and weekly data showed mortgage applications fell on high rates.

"The economy is picking up momentum as we finish up the year. But the improvement in data is not enough to stop the Fed doing what they are doing," said Neil Dutta, an economist at Merrill Lynch Bank of America in New York.

The closely watched core Consumer Price Index, which excludes food and energy costs, edged up 0.1 percent in November, the first gain in three months, the Labor Department said. Overall consumer prices inched up 0.1 percent, slowing from a 0.2 percent rise in October.

The rise in core CPI matched economists' expectations, but CPI was below the 0.2 percent increase that had been forecast.

Stocks on Wall Street .SPX rose on the data, but gains were limited as worries about the debt crisis in the euro zone resurfaced after ratings agency Moody's warned it could downgrade Spain's debt, and the market later started to slip into negative territory.

Prices for U.S. government debt were mostly up, while the dollar rose against a basket of currencies .DXY.

UTILITIES BOOST OUTPUT

Utility output surged 1.9 percent last month and manufacturing increased 0.3 percent, despite a steep drop in vehicle production.

Continued strength in manufacturing, which has been the star performer during the recovery, was underscored by a strong rebound in a gauge of manufacturing in New York state in December.

Adding to the brightening economic picture, credit card delinquency rates fell at major domestic lenders last month as fewer consumers fell behind on bill payments.

Fed officials took little note of the improving tone of economic data after a policy meeting on Tuesday, however, and kept the spotlight on high unemployment and low inflation.

Economists parsing the latest report on consumer prices on Wednesday said it was likely that a slowing in core inflation, which had been troubling the Fed, had now run its course.

In the 12 months to November core CPI gained 0.8 percent, edging up from October's record low 0.6 percent but staying way below the Fed's comfort zone of 1.7 to 2.0 percent inflation.