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 There was a sense of relief as much as anything that after months of
market speculation and advice from almost everyone from the IMF to
the heads of the world's top companies, that the wait for the Fed's
verdict would be over by 1800 GMT.
Europe's main share markets were left at a virtual standstill with
Britain's FTSE 100, Germany's DAX and France's CAC 40 all barely
budged after two days of gains helped by a flurry of merger
activity.
Currency and bond market moves were low key too.
The dollar was under mild pressure mostly from the euro after weak
U.S. inflation data had underscored one of the arguments for the Fed
to hold fire, while oil and some other key commodities gave back
some of their recent gains.
"We think it is going to be a very close call (for the Fed)," said
Stephen Chiu, a strategist at Mitsubishi UFJ Financial Group in Hong
Kong.
"Communicating the future path of interest rates is very important
and the Fed would be careful not to signal any excessive tightening
given global markets are still very vulnerable."
The U.S. central bank's move is garnering such intense attention
because it would be the first rise in its interest rates since 2006
and from the near zero they have been at since the height of global
financial crisis in late 2008.
While the markets have expected it to hike for most of this year,
those expectations have faded following a bout of global market
turmoil over the last couple of months, especially in China.
Futures pricing suggests an only 1 in 4 chance that it will pull the
trigger. The latest poll by Reuters on Wednesday also showed the
majority of economists now expect no hike, although it remains an
extremely close call. (Fed rate decision in graphics: http://graphics.thomsonreuters.com/15/fed/index.html)
FED FOCUS
Despite a late dip 2 percent in volatile Chinese stocks, MSCI's
broadest index of Asia-Pacific shares outside Japan rose 0.6 percent
to its highest level in three weeks.
Japan's Nikkei <.N225> climbed 1.4 percent too while Australian and
Malaysian shares rose 1 and 1.8 percent.
Even if the Fed were to raise rates, many market players expect
officials to signal a dovish stance on the pace of future increases,
rather than herald a brisk series of increases.
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There is also the comfort that both the European Central Bank and
the Bank of Japan appear to be gearing up for fresh rounds of
stimulus and rates are still being cut in many parts of the world.
Switzerland's central bank left its policy of negative interest
rates unchanged on Thursday as it seeks to weaken a "significantly
overvalued" Swiss franc. It also predicted a deeper-than-expected
bout of deflation due to low oil prices.
The oil price slumped between April and August but has since
steadied and it was holding on to sharp gains made on Wednesday in
early European trading.
U.S. West Texas Intermediate (WTI) crude futures were last at $47.21
per barrel, while Brent had dipped back to just under $50 a barrel.
Gold prices also consolidated gains it had made on Wednesday at it
hovered at $1,120 per ounce. Silver was also at its highest level in
three weeks at $14.90 per ounce.
The yield on the U.S. two-year note held near a 4 1/2-year high at
0.803 percent. Even if the Fed doesn't pull the trigger later it is
still expected to by the end of the year.
Euro zone bond yields meanwhile were largely steady, as France and
Spain faced the uncomfortable task of selling debt hours before the
U.S. rate decision.
France plans to sell 7-8 billion euros of medium-term bonds, as well
as 1.0-1.5 billion of inflation-linked debt. Spain is due to sell
4-5 billion of bonds maturing in up to 10 years.
"(The Fed meeting) could have a slightly dampening impact on demand
and keep some investors sidelined," said KBC rate strategist Mathias
van der Jeugt, who expects the Fed to hike rates but signal a very
slow pace of future tightening.
(Additional reporting by Marius Zaharia in London and Saikat
Chatterjee in Hong Kong; Editing by Toby Chopra)
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