* Nasdaq hits intraday record high in early U.S. trading
* Fed flags possibility of Dec hike but outlook more dovish
* Dollar falls (Updates with early U.S. markets activity, changes dateline, previous LONDON)
By Caroline Valetkevitch
NEW YORK, Sept 22 (Reuters) - World stock indexes jumped and the Nasdaq hit a record high on Thursday while bonds rallied, a day after the Federal Reserve signaled an increasingly cautious approach to future U.S. rate increases.
The dollar fell to its lowest in a week against a basket of major currencies as investors sold the greenback following the Fed’s reduction of longer-term interest rate expectations.
The Fed did signal it could hike rates by year-end as the labor market improved further, but cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent.
That left investors feeling that any tightening would be glacial at best. Market pricing for a December move rose only a fraction to 59.3 percent from 59.2 percent, according to CME Group’s FedWatch tool.
“The Fed probably appeared less hawkish than what the markets had expected,” said Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago. “I think the market continues to be focused on the Fed pushing a hike for later as a good thing rather than bad.”
The Dow Jones industrial average was up 118.58 points, or 0.65 percent, to 18,412.28, the S&P 500 had gained 12.05 points, or 0.56 percent, to 2,175.17 and the Nasdaq Composite had added 33.20 points, or 0.63 percent, to 5,328.38.
MSCI’s all-country world stock index was up 1.3 percent, while Europe’s STOXX 600 was up 1.8 percent.
In the bond market, benchmark U.S. yields hit near two-week lows on revived bets the Fed would raise interest rates slowly due to weak economic growth and inflation stuck below its 2-percent goal.
In early trading, benchmark 10-year Treasury notes rose 12/32 in price for a yield of 1.627 percent, down 4 basis points from Wednesday.
The dollar index dropped 0.5 percent to 95.189.
Oil climbed after a surprisingly large drop in U.S. crude inventories emboldened investors ahead of next week’s meeting between OPEC members and Russia to discuss supply.
Brent crude futures rose 1.9 percent to $47.73 a barrel, while U.S. oil futures jumped 2.5 percent to $46.46.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Yashaswini Swamynathan in Bengaluru; Marc Jones in London, Wayne Cole in Sydney and Jongwoo Cheon and Nichola Saminather in Singapore; Editing by Mark Heinrich and Nick Zieminski