Equities higher, dollar falls after Fed statement

Wed Dec 16, 2015 4:49pm EST
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By Chuck Mikolajczak

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.   Continued...

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