* Fed jolts markets by not tapering bond purchases
* Bonds yields drop in Japan, Germany
* Dollar lower vs euro
* Emerging market stocks, currencies rally
By Ryan Vlastelica
NEW YORK, Sept 19 Stocks in Asia and Europe rose
and bond yields fell on Thursday after the Federal Reserve's
decision to stick with its easy money policy, but Wall Street's
rally the day before faded as investors digested the Fed's
comments about the economy.
The Fed announced its decision before the close of U.S.
markets on Wednesday, sending Wall Street to record highs. Asian
and European markets were closed at the time of the statement.
Investors celebrated the prospect of continued stimulus in
the world's largest economy, even though the Fed said it was
sticking with the current pace of bond purchases because of
concerns about the strength of U.S. recovery. The Fed also cut
its growth outlook for both 2013 and 2014.
MSCI's world share index, which tracks
equities in 45 countries, jumped 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.
The Dow Jones industrial average was down 32.41
points, or 0.21 percent, at 15,644.53. The Standard & Poor's 500
Index was down 3.56 points, or 0.21 percent, at 1,721.96.
The Nasdaq Composite Index was up 2.60 points, or 0.07
percent, at 3,786.25.
"After the substantial move yesterday and people digesting
the fact that tapering is put on hold, I don't expect a big move
today," said Ryan Detrick, senior technical strategist at
Schaeffer's Investment Research in Cincinnati, Ohio.
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.
The chance that U.S. interest rates could stay low for
longer was further 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.
In fresh forecasts, the Fed cut its projection for 2013
economic growth to a 2.0 percent to 2.3 percent range from a
June estimate of 2.3 percent to 2.6 percent. The downgrade for
2014 was even sharper.
Other markets that reacted favorably to the Fed's decision
were those of developing nations. The main emerging market stock
index jumped 2.3 percent. The Turkish lira and
Indian rupee leapt while Indonesia's main stock index
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 jumped 1.1 percent and Japan's
Nikkei added 1.8 percent.
The Fed's decision to keep its asset buying at $85 billion a
month 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.
Against a basket of currencies, the dollar 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 $1.3527, after rising 1.2
percent on Wednesday to its highest level in almost eight
In the commodities market, Brent crude fell 1.9
percent to $108.55 per barrel, while U.S. crude futures
slid 1.5 percent. Gold was up 0.1 percent 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