A big energy price drop pulled U.S. consumer prices down sharply in October while industrial output was weak, showing a cooling economy and easing worries over inflation.

A fall in energy prices helped drive U.S. consumer prices down by a more-than-expected 0.5 percent in October and even stripping away volatile food and energy costs, prices were up only 0.1 percent, according to a Labor Department report on Thursday.

U.S. government debt prices fell on Thursday after the latest inflation data came in weaker than expected but was still too high for investors to expect interest rate cuts from the Federal Reserve any time soon.

The dollar rose slightly and stocks rose for a fifth straight day on Thursday. The benchmark Dow Jones industrial average rounded off its longest winning streak since August, hitting a record intraday high of 12,325.91, before closing at a record 12,305.82.

The CPI "will be comforting for the Fed, but they'll need more than one month's data," said Steven Wieting, senior economist at Citigroup in New York.

The government's latest reading on prices was taken as good news by Chicago Federal Reserve Bank President Michael Moskow who said inflation is indeed "moving in the right direction," but it's only one month's data.

"It's one month, and I think it's a bit premature for anyone to say that we have 'broken the back"' of inflation, Moskow told reporters in Chicago.

Economists in a Reuters survey were expecting overall prices to fall 0.3 percent after a 0.5 percent decline in September. Core prices in the Labor Department report were expected to rise 0.2 percent after advancing by the same amount a month earlier.

Year-over-year, core consumer prices rose 2.7 percent, below economists' median forecast for a rise of 2.9 percent. That was a deceleration from the 2.9 percent rise posted in the 12 months through September.

A separate Labor Department report showed little change in labor market conditions. The number of workers signing up for jobless benefits inched down to a seasonally adjusted 308,000 last week from 310,000 the prior week. The four-week average of these claims, which irons out weekly fluctuations, inched up to 313,750 from 311,750.

On the industrial front, however, output at U.S. factories, mines and utilities rose a smaller-than-expected 0.2 percent in October, as production of motor vehicles dropped for the second month in a row.

Factory production fell 0.2 percent as output at motor vehicle plants sunk 3.9 percent last month and more than 10 percent from the same time a year ago, according to Fed data.

Analysts were expecting a 0.3 percent advance in overall industrial output following a 0.6 percent drop in September.

"There does seem to be some weakness, although a lot of it is related to autos; but even outside autos, manufacturing doesn't look too strong," said David Sloan, senior economist at 4Cast Ltd. in New York.

Another survey of manufacturing showed a rebound in activity in the Mid-Atlantic region during November. According to the Philadelphia Federal Reserve Bank, business at factories in that region rebounded in November after contracting for the past two months, in line with Wall Street expectations.

However, an index for new orders in that report, which is seen as a key gauge of future growth, fell and the six-month business outlook slipped.

ENERGY PRICES FALL

In October, energy prices were down 7 percent. For the year to date they were down a seasonally adjusted annual rate of 1.5 percent after surging 17.1 percent last year.

Food and beverage prices were up 0.3 percent in October after gaining 0.4 percent in September. Prices for education and medical care continued to rise last month, while housing prices remained unchanged.

Signs of milder U.S. inflation reaffirmed Wall Street's views the Fed will remain on hold for some time, a Reuters poll of primary dealers showed on Thursday. All 19 respondents expect the central bank to keep benchmark interest rates steady at the next rate-setting meeting on December 12.

Twelve of the 19 respondents expect the Fed to ease next year. In contrast, seven of those polled see the Fed tightening.

"We have seen evidence that the economy is softening and with that softening we are seeing a cooling in inflation as well," David Coard, head of fixed income sales and trading at Williams Capital Group in New York.