December 16, 2015 / 12:35 AM / 2 years ago

Equities higher, dollar falls after Fed statement

Traders work on the floor of the New York Stock Exchange December 11, 2015. REUTERS/Brendan McDermid

NEW YORK (Reuters) - Global equity markets rallied in volatile trade while the dollar lost ground on Wednesday after the U.S. Federal Reserve announced it would raise interest rates for the first time in nearly a decade.

The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

“They are telling you what they are going to do in the next year, which is to investors’ delight,” said Michael Marrale, head of research, sales and trading at ITG in New York.

The move, while modest, signaled a broader comfort by the central bank in the health of the U.S. economy. The Fed’s stimulus measures have helped the S&P 500 more than triple from lows reached in March 2009 during the Great Recession.

The Dow Jones industrial average .DJI rose 102.82 points, or 0.59 percent, to 17,627.73, the S&P 500 .SPX gained 13.98 points, or 0.68 percent, to 2,057.39 and the Nasdaq Composite .IXIC added 30.93 points, or 0.62 percent, to 5,026.29.

Some had expected the Fed to reduce its target for the fed funds rate by the end of 2016, but it remained unchanged at 1.4 percent, which was viewed as modestly hawkish. However, the Fed lowered its expectations for 2017 and 2018, helping push the dollar lower from earlier levels.

The Fed also said it would not put a limit on its reverse repo operations, indicating its intention to push rates higher. Some had thought the Fed would limit those capabilities.

“With the expansion of the reverse repo program, they should be able to achieve the rates they want. It gives them more flexibility,” said Julien Scholnick, Portfolio Manager, Western Asset Management Co in Pasadena, California.

Benchmark 10-year Treasury notes US10YT=RR fell 5/32 in price to yield 2.2835 percent. The yields on two-year Treasuries US2YT=RR climbed to 1.021 percent, the highest since April 2010 and were last at 1.0045 percent.

MSCI’s all-country world index .MIWD00000PUS rose 0.8 percent, while the pan-European FTSEurofirst 300 .FTEU3 index closed up 0.3 percent after a 2.9-percent rally in the prior session.

The dollar index .DXY, which measures the greenback against a basket of other major currencies, lost ground following the statement and was down 0.42 percent at 97.806. The euro EUR= gained 0.51 percent at $1.0983.

Additional reporting by Tanya Agrawal; Editing by Nick Zieminski and Meredith Mazzilli

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