Shares end up after Fed, Cyprus fears ease
NEW YORK (Reuters) - Stock markets around the world closed higher on Wednesday as the Federal Reserve held firm to its plan to stimulate the U.S. economy, while the euro steadied on hopes European policymakers would contain the financial crisis in Cyprus.
The U.S. central bank held to its policy of large-scale bond purchases to boost economic growth despite data indicating improved conditions, though it suggested that the size and pace of the purchases may change based on their expected efficacy and cost.
"This is exactly what we want to hear right now. We should continue to move higher, and gains could accelerate moving forward," said Todd Schoenberger, managing partner at LandColt Capital in New York, who called the statement "fabulous news for equity investors."
The Dow Jones industrial average .DJI rose 55.91 points, or 0.39 percent, at 14,511.73. The Standard & Poor's 500 Index .SPX was up 10.37 points, or 0.67 percent, at 1,558.71. The Nasdaq Composite Index .IXIC was up 25.09 points, or 0.78 percent, at 3,254.19.
Efforts to rescue Cyprus were thrown into disarray on Tuesday when its lawmakers rejected the conditions for a 10 billion euro European Union bailout.
While investors are worried about the impact of a Cypriot collapse could have on the rest of the euro zone, the conditions, which included taxing bank depositors, were also viewed skeptically. Still, markets calmed as investors expected an alternate solution to emerge.
European shares snapped a three-day losing streak, with the FTSEurofirst 300 index .FTEU3 closing 0.3 percent higher while MSCI's world equity index .MIWD00000PUS rose 0.4 percent. The euro bounced off four-month lows to $1.2933 and the U.S. dollar index .DXY dipped 0.2 percent.
In Asia, Hong Kong stocks bounced off a three-month low thanks to a rally in Chinese shares, but MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.1 percent as other regional markets worried about Cyprus. Japanese markets were closed for a holiday.
Concerns about Cyprus were clearly evident at an auction of German government bonds, seen as a European safe haven. The sale of 3.36 billion euros in new 10-year securities drew strong demand and sold at an average yield of 1.36 percent, the lowest auction price since July last year.
Still, German government bonds ticked lower, with the Bund future down 0.3 percent at 144.16. In the U.S. bond market, the benchmark 10-year Treasury note was down 15/32, the yield at 1.9564 percent.
Bond investors were looking to comments by the European Central Bank, which has said it will provide liquidity to Cypriot banks within certain limits. Even if there was no bailout, the bank would have to end emergency lending assistance under its current rules.
Cypriot leaders were holding crisis talks in Nicosia on Wednesday to try to avert a financial meltdown after Tuesday's overwhelming rejection of the terms of the European Union bailout, which involved a levy on bank deposits.
The country was trying to get help from Russia, given the high level of Russian deposits in Cypriot banks, but failed to agree on a loan deal in a first round of talks.
UK BUDGET EYED, OIL RISES
The main UK share index .FTSE dipped a modest 0.2 percent. British finance minister George Osborne called on the Bank of England to do more to help spur the country's stagnant economy as he announced a halving of this year's growth forecast in an annual budget statement.
Oil prices joined in the general recovery, with Brent crude rising 1.1 percent to $108.59 per barrel, while U.S. crude futures added 0.9 percent to $92.96.
"Clearly, market players anticipate that an alternative solution will be found for Cyprus," said Carsten Fritsch, analyst at Commerzbank. "Nonetheless, the uncertainty surrounding this issue is likely to continue to keep oil prices in check in the short run."