European stocks extend gains after Fed news

June 19, 2014
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The dollar extended gains against the yen and stocks moved higher/AFP
The dollar extended gains against the yen and stocks moved higher/AFP
LONDON, Jun 19 – European stock markets climbed on Thursday after the Federal Reserve indicated that ultra-low US interest rates would remain in place for a considerable time.

London’s FTSE 100 index of top companies rose 0.80 percent to 6,833.17 points nearing midday in the British capital.

Frankfurt’s DAX 30 advanced 0.83 percent to 10,012.27 points and in Paris the CAC 40 index gained 0.90 percent to 4,571.36 compared with Wednesday’s close.

The European single currency increased to $1.3636, from $1.3593 late in New York.

After a closely watched meeting, the Fed’s policy committee said it would cut a further $10 billion from its monthly bond-buying, known as quantitative easing (QE), and maintain its “highly accommodative” monetary policy of record-low interest rates.

Policymakers added in an upbeat statement that US economic growth “has rebounded in recent months” from the first-quarter contraction, while household spending and business investment were both rising.

– Yellen upbeat on economy –

The committee “believes that economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter,” said Fed chief Janet Yellen said at a news conference.

There was no mention of an earlier hike in interest rates than mid-2015, providing dealers with at least another year of ultra-cheap money. There had been speculation that a recent run of upbeat economic data — including rising inflation — would prompt the Fed to consider bringing forward its timetable.

“The Federal Open Market Committee reiterated pulling the plug on QE in measured steps as the economic growth continues to bounce back,” said Capital Spreads analyst Jonathan Sudaria.

“At the same time the Fed stood by their previous decision to keep interest rates at record low levels for a considerable time.

“Investors took joy in those reassurances,” added Sudaria.

In reaction, New York’s S&P 500 index bolted on Wednesday to a new record high point, jumping 0.77 percent to 1,956.98.

The Dow Jones Industrial Average gained 0.58 percent to 16,906.62 points, while the tech-rich Nasdaq Composite Index advanced 0.59 percent to 4,362.84.

Asian markets were mixed Thursday but Tokyo rallied 1.62 percent to end at a five-month high at 15,361.16 points.

Sydney rose 1.59 percent and Seoul put on 0.13 percent, but Hong Kong closed flat and Shanghai tumbled 1.55 percent.

In London, the top gainer was British aircraft engine maker Rolls-Royce.

The company outlined plans to return £1.0 billion ($1.7 billion, 1.25 billion euros) to investors via a share buyback following the sale of its energy production arm to Germany’s Siemens.

In response, Rolls-Royce shares soared 5.82 percent to 1,068.73 pence.

“Rolls-Royce has powered to the top spot, having promised shareholders a billion pounds in buybacks, after it sold its gas turbine unit to Siemens earlier in the year,” added IG analyst Will Hedden.

“Perhaps unusually for current climes, the jet engine maker has stated that it plans no acquisitions.”

In France, shares in power company EDF slumped 8 percent to 24.52 euros after its request to raise rates was rejected.

– Pound hits new high –

In foreign exchange deals, the pound rallied to a new five-year high at $1.7028 — last seen in August 2009 — on expectations of a British interest rate hike this year.

“The pound is boosted above all by a hawkish Bank of England, and a stronger UK economy, while the dollar continues to be shot down by a dovish Federal Reserve,” said Forex.com analyst Fawad Razaqzada.

The pound later stood at $1.7020, up from $1.6990 on Wednesday. The euro meanwhile firmed to 80.10 British pence from 80.01 pence.

On the London Bullion Market, the price of gold rose to $1,281.46 an ounce from $1,269.75 on Wednesday.

Meanwhile the Swiss franc strengthened to 1.2169 francs against the euro and 0.8922 against dollar the after the central bank kept rates on hold and vowed it would defend at any cost the floor it has set of 1.20

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