World stock markets roared their approval on Thursday of reassurances the U.S. Federal Reserve will not rush into raising interest rates, with risk appetite flooding back into almost every asset class.
The dollar .DXY jolted lower, while oil LCOc1 and commodity prices rose. Bond yields in large parts of Europe, which have plunged during years of cheap funding from the Fed and the world's other major central banks, hit new record lows.
Minutes of the Fed's Sept. 16-17 meeting published late on Wednesday showed officials were wary about the dual threats of a stronger dollar and recent wobbles in the world economy as they seek an eventual exit from record low rates.
There were big gains on Wall Street and for Asia stocks, and European shares duly followed suit as Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI rose 0.7, 1.2 and 0.8 percent respectively in early trading.
"It (the Fed's message) has stabilised risk appetite and it was well needed following the macro economic disappointments we have had recently," said Hans Peterson, global head of asset allocation at SEB investment management. "It is a burning issue, the pace of U.S. interest rate rises. They will tighten of course, but it will probably be very slow."
Even news that German exports slumped 5.8 percent in August -- their biggest fall since the height of the financial crisis in January 2009, and yet another sign that Europe's largesteconomy is faltering -- failed to dampen the mood.
Spanish ES10YT=TWEB and Belgian BE10YT=TWEB bond yields hit record lows and German Bunds DE10YT=TWEB edged towards them in a broad-based euro zone debt rally, while many emerging market bonds and currencies jumped. [EMRG/FRX]
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which touched its lowest level since March in the previous session, was up about 1.2 percent in late trade. Japan's Nikkei share average .N225 skidded 0.8 percent, however, as the yen rose against the weakened dollar.
"Fed officials have concerns on the impact of a strong dollar, which undermines the scenario held by some that Japanese shares will benefit from further strength in the dollar against the yen," said Masayuki Doshida, senior market analyst in Tokyo for Rakuten Securities.
RATE DEBATE
U.S. interest rate futures <0#FF:> <0#ED:> reacted swiftly to the minutes, with June 2015 eurodollar interest rate futures EDM5 hitting a contract high as traders scaled back expectations the Fed will raise rates by the middle of 2015.
The rate-sensitive two-year U.S. Treasury note yield US2YT=RR hit a seven-week low of 0.444 percent. The 30-year bond yield US30YT=RR dropped to a 17-month low of 3.039 percent.
In the currency market, where the dollar had gained sharply over the past three months on the perception that higher U.S. rates down the road will attract more funds, investors rushed out of dollar-buying positions.
The dollar's index against a basket of six major currencies .DXY =USD slipped as low as 85.046 in early European trading, its lowest level in about two weeks and well off a four-year high of 86.746 hit on Friday.
For the euro it meant a fourth day of upward momentum. It was at a session high of $1.2769EUR= at 0815 GMT despite the weak German data, while the yen was at a three-week high, with a dollar worth 107.85 yen JPY=.
"It appears likely now that the dollar index's record run of 12 consecutive weekly gains will be brought to an end this week," said Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi in London.
In commodities trading, U.S. crude oil prices rebounded from a 1-1/2-year low hit overnight, adding about 0.2 percent to $87.60 per barrel CLc1, while Brent crude, the European benchmark, rose off Wednesday's two-year low to gain 0.2 percent on the day to $91.57 LCOc1. A weaker dollar makes dollar-denominated assets cheaper for holders of other currencies.
Gold, which also tends to benefit from loose monetary policy, climbed to its highest in about two weeks, with spot gold XAU= rising about 0.4 percent to $1,226.40 an ounce.
The Fed was not the only central bank in action though.
The British pound stood at $1.6165 GBP=D4, steady on the day and holding above an 11-month low of $1.5943 on Monday, ahead of the Bank of England's policy announcement later in the session. The bank is expected to keep rates steady near record lows.
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