European shares rally as Fed sugar-coats taper move

Thu Dec 19, 2013 7:19am EST
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By Marc Jones

LONDON (Reuters) - European shares rallied on Thursday after the U.S. Federal Reserve sugar-coated its decision to start winding down its crisis-era stimulus with a promise to keep interest rates at record low levels even longer than previously signaled.

Investors had been agonizing for months over when the Fed would start reducing its bond buying program. But in the end they took its $10 billion reduction in monthly stimulus in their stride, seeing it as a modest step the U.S. economy could well withstand.

After Wall Street ended at a record high and Tokyo and some other parts of Asia posted big gains, European stocks .FTEU3 raced up 1.5 percent in their biggest jump in over two months. .EU

The dollar was the other major beneficiary, though it was showing signs of fatigue as Europe headed towards midday.

Having surged as far as 104.37 yen overnight it was back at 104, while the euro had regained its footing again having toppled back to $1.3675 from a $1.3811 top.

The Fed softened the blow of reducing its stimulus by making its forward guidance on interest rates even more dovish. <TOP/CEN>

"It likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the committee's 2 percent longer-run goal," the Fed statement said.

Samy Chaar, senior investment strategist at Lombard Odier's private banking division noted the Fed's forecasts for the funds rate had also been trimmed out to the end of 2016.   Continued...

An electronic information board is seen at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth