Dollar rises, Wall Street pulls back day after Fed decision
NEW YORK (Reuters) - The U.S. dollar rose on Thursday while Wall Street shares mostly edged lower, a day after a sharp rally driven by the Federal Reserve's unexpected decision to maintain its stimulus program.
Global equities markets rose, with Asia and Europe, whose markets had already closed when the Fed released its decision on Wednesday, surging on the news. Wall Street hit record highs on Wednesday.
U.S. Treasuries yields rose from one-month lows on Thursday as investors questioned when the Fed is likely to begin to pares its $85 billion a month in bond purchases.
MSCI's world share index .MIWD00000PUS, which tracks equities in 45 countries, rose 0.9 percent and hit a five-year high as large gains in Asian markets were followed by a 0.6 percent rise in European shares .FTEU3.
But Wall Street was broadly lower, though a 1.6 percent rise in the shares of Apple Inc (AAPL.O) helped drive the Nasdaq modestly higher.
"People are reconsidering," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. The market "may be coming around to the view the Fed is a little worried, the economy isn't as strong as some people were thinking."
In announcing its decision on Wednesday, the Fed cited concerns about the strength of the U.S. recovery, and also cut its growth outlook for both 2013 and 2014.
The Dow Jones industrial average .DJI was down 40.39 points, or 0.26 percent, at 15,636.55. The Standard & Poor's 500 Index .SPX was down 3.18 points, or 0.18 percent, at 1,722.34. The Nasdaq Composite Index .IXIC was up 5.74 points, or 0.15 percent, at 3,789.38.
In emerging markets, which have been suffering as higher yields in the developed world attracted much-needed foreign capital, stocks and currencies rose as the Fed decision meant delayed U.S. rate hikes. <EMRG/FRX>
The chance that U.S. interest rates could stay low for longer was also raised after a White House official said that Janet Yellen, the Fed's vice chair and a noted policy dove, was the front-runner to take over the Fed when Ben Bernanke steps down in January.
"The bottom line is that the (Fed) meant to send an extremely dovish message, not only through the lack of tapering, but also with its 2016 forecasts," analysts at Barclays wrote, adding that they now expected the first rate hike to occur in June 2015 rather than March 2015.
The main emerging market stock index .MSCIEF jumped 2.4 percent. The Turkish lira and Indian rupee leapt while Indonesia's main stock index .JKSE climbed 4.7 percent.
"Markets are thrilled, and a much-needed reprieve for battered EM investors is on its way," said Frederic Neumann, co-head of Asian economics research at HSBC. "With Chinese data having turned up, and the Bank of Japan running at full speed, it looks like Asia might get its mojo back."
Australian shares .AXJO jumped 1.1 percent and Japan's Nikkei .N225 added 1.8 percent.
The Fed's decision to keep its asset buying unchanged was partly a reaction to the sharp rise in Treasury yields over recent months, which was proving a headwind for the housing market and the U.S. economy in general.
Ten-year Treasury bonds were down 16/32, with the yield at 2.7482 percent.
Overseas, Japanese debt yields dropped to four-month lows while in Europe German Bund yields fell as low as 1.827 percent after their biggest drop in over a year. <GVD/EUR>
Against a basket of currencies, the dollar .DXY was up slightly, recovering from earlier losses of more than 1 percent that took the index to its lowest level since February.
The euro was flat at $1.3531, after rising 1.2 percent on Wednesday to its highest level in almost eight months.
In the commodities market, Brent crude fell 1.7 percent to $108.69 per barrel, while U.S. crude futures slid 1.5 percent. Gold was flat after a 4.2 percent surge in Wednesday's session.
Oil prices dropped after Iran's president said his country was not seeking war with any other nation, helping unwind a risk premium and foster speculation of a recovery in oil exports to the West.
(Editing by Kenneth Barry and Leslie Adler)
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