By Stephen Culp

NEW YORK (Reuters) -Wall Street surged on Friday and the dollar softened as cooler-than-expected inflation data helped investors look past the possibility of a government shutdown and fresh tariff threats from U.S. President-elect Donald Trump.

All three major U.S. stock indexes jumped more than 1%, gold surged and benchmark U.S. Treasury yields eased from multi-month highs.

A report from the Commerce Department showed the PCE price index, the Federal Reserve's preferred inflation yardstick, came in cooler than analysts expected, supporting the narrative that price growth remains on a path toward achieving the U.S. central bank's 2% target.

"The better-than-expected reading for PCE, which is the Fed’s favorite measure of inflation, allowed investors to breathe a sigh of relief because maybe inflation is not likely to be as much of a runaway situation as feared," said Sam Stovall, chief investment strategist of CFRA Research in New York.

Equity markets came under pressure throughout a busy week for central banks, led by the U.S. Federal Reserve, which signaled it would slow the pace of interest rates in the coming year.

Republican leaders in the U.S. House of Representatives said they would vote to keep the federal government operating beyond a midnight deadline and avert a damaging shutdown that could disrupt the Christmas holiday.

"The focus of the market over the last several days has been on the Fed's announcement that while they were lowering interest rates by 25 basis points, that they were going to begin to rein (future rate cuts) in, and it certainly shook the markets," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. "The potential government shutdown is the other big focus. Markets never like that."

The S&P 500, the Nasdaq and the Dow were all on course for weekly percentage declines.

The Dow Jones Industrial Average rose 497.22 points, or 1.17%, to 42,839.46, the S&P 500 rose 63.93 points, or 1.09%, to 5,931.01 and the Nasdaq Composite rose 199.83 points, or 1.03%, to 19,572.60.

European stocks registered their worst week in over three months as Trump's comments about potential tariffs on the European Union spooked investors.

MSCI's gauge of stocks across the globe rose 8.20 points, or 0.98%, to 847.61.

The STOXX 600 index fell 0.88%, while Europe's broad FTSEurofirst 300 index fell 19.25 points, or 0.96%.

Emerging-market stocks fell 7.38 points, or 0.68%, to 1,074.38. MSCI's broadest index of Asia-Pacific shares outside Japan closed lower by 0.97%, to 567.00, while Japan's Nikkei fell 111.68 points, or 0.29%, to 38,701.90.