January 28, 2015 / 12:57 AM / 4 years ago

U.S. bonds rally after Fed; stocks retreat

NEW YORK (Reuters) - U.S. bond prices rallied, with the 30-year yield hitting a record low on Wednesday as investors bet U.S. rate hikes were less likely to start soon after the Federal Reserve said inflation was running below forecasts.

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji

U.S. stocks, after spending most of the session higher, reversed course and fell, with the S&P 500 ending more than 1 percent lower. The dollar strengthened.

Some stock investors saw Fed officials as more upbeat on the U.S. economy, suggesting they will stick with their plan for raising interest rates by mid-year.

Thirty-year bonds US30YT=RR were last up 2-18/32 in priceto yield 2.29 percent after setting a record low of 2.273percent, according to Thomson Reuters data.

Other maturities, including the 10-year US10YT=RR, also rose in the rally following the statement from the Fed, which repeated it will remain “patient” in beginning to normalize monetary policy. The statement concluded the Fed’s first policy-setting meeting of the year.

The Fed’s mention of international developments was “probably perceived as dovish” and caused the bond market to rally, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

“International developments will likely slow them down (more) than speed them up. They introduce that as a risk. They upped their view on growth to strong from solid. They went the other way on inflation,” he said.

The Fed said it would take “financial and international developments” into account when determining when to raise rates. In its last statement in December, the Fed had only noted “financial developments.”

The dollar was up broadly, with gains against the euro and the Swiss franc, taking in stride the Fed’s repeated message that it will remain “patient” in deciding on rates.

The U.S. dollar index .DXY edged up to session highs after the Fed’s statement, gaining 0.66 percent on the day to 94.647.

On Wall Street, the Dow Jones industrial average .DJI fell 195.84 points, or 1.13 percent, at 17,191.37. The Standard & Poor’s 500 Index .SPX was down 27.39 points, or 1.35 percent, at 2,002.16. The Nasdaq Composite Index .IXIC was down 43.50 points, or 0.93 percent, at 4,637.99.

MSCI’s global share index .MIWD00000PUS was down 1 percent. An index of European shares .FTEU3 ended down 0.1 percent, pressured by worries that Greece’s new government is heading for clashes with the rest of the euro zone over its debts.

Energy shares led the way lower for U.S. stocks, with the S&P 500 energy index .SPNY falling 3.9 percent.

U.S. oil prices were near six-year lows after the government reported record-high inventories in the United States, adding to worries about a global oil glut.

U.S. crude’s front-month contract CLc1 settled down $1.78, or almost 4 percent, at $44.45 a barrel. It sank to as low as $44.08 before the close, marking a bottom since April 2009. Brent LCc1 fell $1.13 to settle at $48.47.

Gold prices extended losses after the Fed statement. Spot gold XAU= was down 0.6 percent at $1,284.11 an ounce.

Additional reporting by Richard Leong and Michael Connor in New York; Editing by James Dalgleish and Dan Grebler

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