GLOBAL MARKETS-Fed-fueled stocks fly, dollar sags; oil 9-mo high on Iraq

Thu Jun 19, 2014 4:34am EDT

By Jamie McGeever
    LONDON, June 19 (Reuters) - Global stocks and emerging
market assets rallied on Thursday after the U.S. Federal Reserve
signaled that rising inflation won't trigger an interest rate
rise any time soon, while Iraq turmoil sent crude oil futures to
their highest this year.
    Following the S&P 500's rise to yet another record high on
Wednesday, Asian equities posted strong gains - Japan's Nikkei
225 hit its highest since late January - and European
bourses also opened sharply higher.  
    Investors' sanguine interpretation of the Fed's outlook was
reflected in another collapse in market volatility. The VIX
measure of implied volatility on Wall Street, the so-called
"fear index", and major foreign exchange volatility measures hit
7-year lows.
    The big loser in the wake of the Fed's policy statement and
Chair Janet Yellen's press conference was the dollar. It fell
against major and emerging market currencies, in tandem with
U.S. Treasury yields, hitting a five-year low against sterling. 
    "The Fed managed to navigate through what some had expected
to be a potentially tricky announcement by providing further
fuel for both equity and Treasury market bulls - quite an
achievement given both are already at levels that leave skeptics
perplexed," Rabobank analysts said in a note to clients on
Thursday.
    In early trading Thursday, the FTSEurofirst 300 
index of leading European shares was up two thirds of a percent
at 1,396 points. 
    Germany's DAX was up three quarters of a percent at
10,003 points, within 30 points of its record high. Britain's
FTSE 100 was up 0.7 percent at 6,825 points and France's
CAC 40 was also up 0.7 percent at 4,561 points.
    The top blue-chip gainer in Europe was Rolls Royce,
with the engine maker up more than 6 percent after it announced
a one billion pound ($1.69 billion) share buyback.
 
    Earlier in Asia, Japan's Nikkei 225 surged 1.6 percent to
15,361 points, and MSCI's broadest index of Asia-Pacific shares
outside Japan gained 0.8 percent.
    
    DOLLAR DOLDRUMS
    The Fed on Wednesday slashed its 2014 growth forecast but
expressed confidence that the economy will continue to recover
steadily in the coming years, which could warrant a slightly
more aggressive pace of interest rate hikes when they start. 
    But that probably won't be until the middle of next year,
and Yellen dismissed the recent rise in inflation to its highest
in over a year as "noise". 
    "There were those speculating that the Fed would have to
come up with a more hawkish commentary and obviously they have
been disappointed," said Neil Mellor, a currency strategist with
Bank of New York Mellon in London. 
    "Nothing has really changed from the past few days, so there
will be a propensity to buy some euros, and probably sterling in
lockstep with that," he said.
    The dollar index, a gauge of the greenback's strength
against a basket of key currencies, fell 0.4 percent to 80.25.
    The dollar fell 0.1 percent against the yen to 101.75 yen
, the euro rose 0.2 percent to $1.3620 and sterling
hit a five-year high of $1.7018.
    Turkey's lira and South Africa's rand were
among the emerging market currencies to take heart from the
Fed's policy stance.
    In bonds, the benchmark 10-year Treasury note yield
 fell to as low as 2.575 percent, its lowest in a
week.
    In commodities, Brent crude rose to a nine-month
high of $114.80 a barrel hit on persistent worries over oil
exports from war-torn Iraq, where Islamic militants seized much
of its northern region as Baghdad's forces crumbled.  
    Brent was poised for a third day of gains following a rise
of more than 4 percent last week, with Iraqi government forces
battling Sunni militants for control of the country's biggest
refinery. 

 (Reporting by Jamie McGeever, additional reporting by Patrick
Graham; Editing by Toby Chopra; To read Reuters Global Investing
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