Shares, bonds rally, dollar tumbles as Fed cools taper talk

Thu Jul 11, 2013 8:53am EDT
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By Marc Jones

LONDON (Reuters) - Shares and bonds rallied globally on Thursday and the dollar tumbled after U.S. central bank chief Ben Bernanke signaled the Fed may not be as close to winding down its stimulus policy as markets had begun to expect.

Wall Street was expected to open sharply higher and could set a new all-time high if the S&P 500 .SPX gains 1.4 percent to break through May's record. .N

Fed Chairman Bernanke said on Wednesday the overall message coming from the central bank was that "a highly accommodative policy is needed for the foreseeable future.

Despite minutes from the Fed's June meeting showing half of its policymakers think its $85 billion-a-month stimulus program should be wound down by the end of the year, Bernanke's message was enough to snap markets back into buying mode.

U.S. stimulus has supported equity markets and kept interest rates low and there is concern in financial markets that if the Fed unwinds its support too soon that could slow the recovery of the world's biggest economy.

Benchmark European bonds tracked gains in U.S. debt and European shares .FTEU3 climbed almost 1 percent to push MSCI's world index .MIWO00000PUS to its highest in just under a month. Commodities and emerging market assets also rose as did the oil price.

"Bernanke's comments were taken by the markets as much more dovish so I suspect it will be a good day for risk markets," said Saxo bank Chairman and senior market analyst Nick Beecroft.

"We are still in a bit of a sweet spot. The economy is doing well enough to encourage equity markets about future earnings, but not too hot to cause the Fed to remove accommodation."   Continued...

A visitor walks past logos at the Tokyo Stock Exchange in Tokyo June 13, 2013. REUTERS/Toru Hanai