* U.S. Fed nods to firmer inflation, still focused on labor
* Dollar broadly holds gains, hits session high against yen
* S&P 500 erases losses to trade slightly up
* Gold extends decline on strong U.S. economic data
(Updates with FOMC statement, economist comment)
By Angela Moon
NEW YORK, July 30 The dollar held gains against
a basket of major currencies while U.S. Treasuries yields surged
on Wednesday after the Federal Reserve raised its assessment of
the U.S. economy while reiterating it is in no hurry to increase
The Fed took note of a decline in the jobless rate and
signalled more comfort that inflation was moving up toward its
"We only expected marginal changes, and for the most part we
got that - with the caveat that they were a bit more hawkish
than was widely expected," said Tom Porcelli, chief U.S.
economist at RBC capital markets in New York. "They basically
diminished this whole notion of disinflation in their comment."
The S&P 500 turned slightly higher while the Dow Jones
industrial average pared losses. The U.S. dollar broadly held
gains, hitting session highs against the yen at 103.08.
As widely expected, the central bank also cut its monthly
asset purchases to $25 billion from $35 billion, leaving it on
course to shutter the program this fall.
The statement came after data showed second-quarter gross
domestic product expanded at a 4.0 percent annual rate as
activity picked up broadly, after shrinking at a revised 2.1
percent pace in the first quarter.
"We will be expecting more of a hawkish stance in
September," said Aaron Kohli, an interest rate strategist at BNP
Paribas in New York. "These kinds of numbers should encourage
the Fed to be much more assertive."
U.S. Treasuries yields surged. Two-year note yields
rose as high as 0.58 percent, the highest since May
2011. Three-year note yields reached a high of 1.06
percent, the highest since April 2011.
Benchmark 10-year notes yields rose as high as
2.57 percent, the highest since July 16, from 2.47 percent
before the GDP data.
The U.S. dollar index, which measures the dollar
against a basket of six currencies, was last up 0.3 percent at
81.459, just under a 10-1/2-month high of 81.545 touched earlier
in the session.
The Dow Jones industrial average fell 32.04 points or
0.19 percent, to 16,880.07, the S&P 500 gained 0.09
points or 0 percent, to 1,970.04 and the Nasdaq Composite
added 17.61 points or 0.4 percent, to 4,460.31.
The MSCI's All-World Index was down 0.2
percent and European shares fell 0.5 percent, held back
by cement makers. Switzerland's Holcim and Germany's
HeidelbergCement reported disappointing results,
blaming weak emerging-market currencies.
Spot gold slipped 0.3 percent to $1,294.85 an ounce.
U.S. gold futures were down 0.31 percent to $1,294.30 an
Brent crude fell $1.21 to settle at $106.57 a
barrel, while U.S. crude slipped 70 cents to settle at
$100.27 a barrel after hitting a low of $99.90.
(Reporting by Angela Moon; Editing by Nick Zieminski)