The uint16_t got promoted to an int for the multiplication, causing undefined behavior. (if I remember right, the result was assigned to a uint16_t as well, making the intent clear) The compiler then assumed that the 32-bit intermediate couldn't possibly have the sign bit set, so it wouldn't matter if promotion to a 64-bit value had sign extension or zero extension. Depending on the optimization level, the compiler would do one or the other.
This is truly awful behavior. It should not be permitted.