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 The Fed, which kept its rates on hold as expected, took the unusual
step of strengthening its language about timing in its statement,
bringing a December rate hike back on the table.
In another hawkish tilt, the Fed also took out a warning about
slowing global growth, going against earlier speculation that
China's cooling economy could delay a rate hike in the United
States. As a result, money market futures <0#FF:> are pricing in
about a 50 percent chance of a rate hike in December, compared to
around 30 percent previously.
"I think when it comes to it, the markets will be able to cope just
fine with a rate hike as it will suggest that the economy is
recovering well and showing strong resilience at a time when other
countries are really struggling," said Craig Erlam, senior market
analyst at Oanda, London.
The pan-European FTSEurofirst 300 index was up 0.3 percent at
1,489.45 points by 0811 GMT, while Japan's Nikkei share average
gained 0.2 percent to close at 18,935.71.
That came after Wall Street ended a volatile session with solid
gains, underpinned by the Fed's vote of confidence in the U.S.
economy. The Fed's relatively upbeat stance came despite recent
worries about global growth due to a slowdown in China.
In overnight trade, U.S. Treasury yields and the dollar rose while
shares initially sold off and then reversed, after the Fed
explicitly referred in its statement at the end of its two-day
policy meeting, to conditions necessary "to raise the target range
at its next meeting." Reference to a particular meeting is rare for
the Fed.
"There is no doubt an earlier move may give the markets greater
clarity and more confidence," said Chris Brankin, chief executive
officer of TD Ameritrade Asia in Singapore. "However, focusing on
the timing is feeding uncertainty."
EYES PEELED FOR U.S. DATA
Many investors are still not convinced about a lift-off given a
recent run of soft U.S. data, making economic releases in coming
weeks, starting with the advance reading of U.S. GDP due later on
Thursday, more crucial in determining the a December move.
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Economists also expect a key U.S. manufacturing index due on Monday
to show the first contraction in the sector in 2-1/2 years, which
would not be conducive for a rate hike.
The dollar fell 0.3 percent to 120.77 yen after spiking as high as
121.26 on Wednesday. It held its ground against the euro, though,
trading at $1.0930, having skidded to a 2-1/2 month low of $1.0826
overnight.
The Fed's stance is in contrast to the ECB and other major central
banks, a factor that will underpin the dollar.
The European Central Bank last week signaled its readiness to inject
more stimulus to boost prices and the People's Bank of China
followed with its sixth interest rate cut in less than a year.
Crude oil futures fell, although they retained most of their gains
after soaring more than 6 percent overnight as the U.S. government
reported an inventory build-up, which triggered a short-covering
rally after three days of losses. [O/R]
U.S. crude fell 1 percent to $45.56 a barrel. Brent slipped
1.3 percent to $48.40.
Spot gold ticked up to $1,160.76 an ounce, after skidding more than
1 percent in the previous session in the wake of the Fed's hawkish
message.
(Additional reporting by Lisa Twaronite and Nichola Saminather;
Editing by Toby Chopra)
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