GLOBAL MARKETS-Stocks, euro climb after Fed; bonds tumble

Wed Dec 12, 2012 1:46pm EST

* Fed makes new rate pledge, pledges more stimulus
    * Dollar falls vs euro, higher-yielders
    * Treasury prices fall sharply after brief bounce
    * Gold rises as Fed move bolsters demand for inflation hedge

    By Wanfeng Zhou
    NEW YORK, Dec 12 (Reuters) - U.S. stocks rose and the euro
jumped against the dollar on Wednesday after the Federal Reserve
ramped up its monetary stimulus and took the unprecedented step
of saying it would keep interest rates near zero until the
jobless rate falls sharply.
    Treasury prices briefly added to gains after the Fed
announcement but then quickly faded on disappointment that the
Fed will not buy as much in long-dated issues as some traders
had hoped.
    The Fed said it will likely keep official rates near zero
for as long as unemployment remains above 6.5 percent, inflation
is projected to be no more than 2.5 percent one or two years
ahead and inflation expectations remain contained.
    Most economists had not expected the central bank to adopt
thresholds for policy until sometime next year. The step came as
Fed officials committed to monthly purchases of $45 billion in
Treasuries on top of the $40 billion per month in
mortgage-backed bonds it started buying in September, as
expected.
   "It's another round of easing. It is good for stocks and risk
more generally. And they came out with an economic data point as
a guideline. That's very important, because it helps the market
anticipate an exit strategy," said Quincy Krosby, market
strategist, Prudential Financial in Newark, New Jersey.
    "The markets had not expected this would necessarily happen
at this meeting. It gives some certainty rather than having
everything open-ended."
    The Dow Jones industrial average gained 69.28 points,
or 0.52 percent, to 13,317.72. The Standard & Poor's 500 Index
 gained 9.64 points, or 0.68 percent, to 1,437.48. The
Nasdaq Composite Index gained 7.82 points, or 0.26
percent, to 3,030.13. 
    The MSCI global stock index advanced 0.6
percent to 339.04.
    The euro rose 0.6 percent to $1.3078 after hitting a
session peak of $1.3096 after the Fed announcement. The dollar
rose 0.9 percent to 83.26 yen.
    The euro had jumped sharply minutes before the Fed
announcement. Traders attributed the move to comments from
Silvio Berlusconi, who said he would withdraw as a candidate in
Italy's coming election if outgoing Prime Minister Mario Monti
ran as the head of a "moderate" coalition. 
    The dollar also weakened broadly against higher-yielding
currencies such as the Australian and New Zealand dollars.
     Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington, said the scope for further dollar losses
may be somewhat limited, given investor concern about the U.S.
"fiscal cliff," which could boost the safe-haven dollar.
     U.S. House of Representatives Speaker John Boehner said on
Wednesday "serious differences" remain with President Barack
Obama in talks to avert the steep tax hikes and budget cuts set
for the new year. 
    "Uncertainty about the euro zone, concerns about Italy and
the Japan election this weekend should also limit dollar
losses," Esiner said.
    The dollar rose to an eight-month high of 83.29 yen and was
last up 0.9 percent at 83.24 on bets the Bank of Japan
will implement more aggressive monetary easing after an election
on Sunday expected to yield a victory for the Liberal Democratic
Party. 
    The benchmark 10-year U.S. Treasury note was down 12/32 in
price, the yield at 1.6971 percent.
    "By having a relatively high threshold at 6.5 percent
unemployment, it is really an unchanged policy stance," said Ira
Jersey, an interest rate strategist at Credit Suisse in New
York.
    "They are basically taking out the same amount of duration
that they were in Twist, but they are buying less in the
long-end than they had been before," he said.
    Oil prices rose. Brent crude futures were up $2.02
to $110.03 a barrel. U.S. crude was up $1.37 at $87.16 a
barrel. 
    Spot gold was up 0.6 percent at $1,720.20 an ounce
after the Fed decision bolstered its inflation-hedge appeal.
FILED UNDER: