* Fed hikes 25 bps but confounds hawks with cautious outlook
* Dollar lower across the board in Asia, weakness could be
* Euro gets added lift as Dutch election soothes EU breakup
* Stock markets, commodities rally as risk aversion ebbs
* China nudges up market rates, says is not a change in
By Wayne Cole
SYDNEY, March 16 The dollar nursed painful
losses in Asia on Thursday while sovereign bonds savoured their
biggest rally in nine months after the Federal Reserve hiked
interest rates, as expected, but signalled no pick-up in the
pace of tightening.
The euro got an added bonus when returns showed the anti-EU
party of Geert Wilders won fewer seats than expected in Dutch
elections, soothing fears that public opinion was swinging
inexorably towards a break-up of the union.
The sigh of relief was heard across Asia as investors had
feared faster U.S. hikes and more political upheaval in Europe
could spook funds out of emerging markets.
"The Fed makes the world safe for risk until June," said
CitiFX strategist Steven Englander. "Buy emerging market FX,
Gold, copper and oil all rallied as the dollar dropped.
MSCI's broadest index of Asia-Pacific shares outside Japan
jumped 1.2 percent to its highest level since
Spread betters pointed to solid opening gains for European
bourses, while E-mini futures for the S&P 500 edged up another
South Korea's market climbed 0.6 percent, and even
Japan's Nikkei managed a slight rise despite the damage
done to exporters by a firmer yen.
Shanghai stocks added 0.7 percent with investors
seemingly untroubled as China's central bank raised short-term
rates for the third time in as many months.
The Dow had ended Wednesday with gains of 0.54
percent, while the S&P 500 added 0.84 percent and the
Nasdaq 0.74 percent.
The Fed lifted its funds rate by 25 basis points, as
expected, to a range of 0.75 percent to 1.00 percent, but said
further increases would only be "gradual."
Crucially, officials stuck to their outlook for two more
hikes this year and three more in 2018, when many had expected
an accelerated spate of moves.
Rather, the Fed said its inflation target was "symmetric,"
indicating that after a decade of below-target inflation it
could tolerate a quicker pace of price rises.
That was painful news for bond bears who had built up huge
short positions in Treasuries in anticipation of a hawkish Fed.
Yields on two-year notes were down at 1.30
percent, having fallen 8 basis points overnight in the biggest
daily drop since June last year.
The drop pulled the rug out from under the dollar, which
sank to a three-week low of 100.510 against a basket of
The euro was taking in the view at $1.0727, having
climbed 1.2 percent overnight in its steepest rise since June.
The dollar suffered similar losses on the yen to huddle at
Richard Franulovich, a forex analyst at Westpac, noted
history showed a strong positive correlation between the dollar
and yields one week after a Fed meeting and the direction and
magnitude of the change in policymakers' projected rate
increases - termed dots - from meeting to meeting.
"The absence of any overt hawkish guidance from the Fed and
their dots should leave the dollar trading on the back foot over
the next month," he said.
The yen and the Swiss franc tended to move the most in the
first week, he added, but the impact tended to be longer lasting
on the Australian and Canadian dollars.
The Aussie currency did indeed rise a rousing 2
percent in the wake of the Fed, but took a slight knock on
Thursday when local data showed the country's jobless rate hit a
13-month peak in February.
A protracted bout of weakness for the U.S. dollar would be
seen as positive for commodities priced in the currency.
Spot gold was up at $1,225.13 an ounce, after
enjoying its biggest daily jump since September.
U.S. crude futures rose 27 cents to $49.13 per
barrel, adding to a 2.4 percent gain on Wednesday. Brent
firmed 31 cents to $52.12, after rising more than a dollar
(Editing by Neil Fullick)