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GLOBAL MARKETS-Wall St rallies, dollar gains after Fed policy statement
December 17, 2014 / 8:32 PM / 3 years ago

GLOBAL MARKETS-Wall St rallies, dollar gains after Fed policy statement

(Updates with Wall St jump, Fed policy statement and latest prices)

* Federal Reserve signals 2015 rate increases

* U.S. share indexes up more then 1 percent

* Oil prices increase, rouble gains

By Michael Connor

NEW YORK, Dec 17 (Reuters) - U.S. stock prices jumped and the dollar strengthened on Wednesday after the Federal Reserve signaled America’s economy was strong enough to handle interest rate hikes at some point in 2015, but emphasized that shifts in policy would be gradual.

The dollar rose against most other currencies, though it declined sharply against the Russian rouble, whose dramatic drop has roiled markets and driven up the prices of safe-haven government bonds.

Wall Street, coming off three days of declines, had risen with steep gains in energy stocks even before the Fed issued a statement saying it was adopting a “patient” approach to raising interest rates. The Fed said that investors should view its latest outlook as similar to its frequent use of the phrase “considerable time” before raising rates.

Markets took the comment as a sign the U.S. central bank will end historically low rates next year. Fed Chair Janet Yellen, in a press conference following the statement, said the Fed could act at any time, but suggested monetary policy would be accommodative for a long period of time.

“The Fed is in the best of all possible worlds because they appreciate the need to restore monetary policy to more normal levels, that they have the luxury of time because there’s no inflationary pressure,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Banking in New York.

In the latest economic data released on Wednesday, U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled.

Wall Street’s Dow Jones industrial average was last up 1.26 percent, to 17,284.17, and the S&P 500 ahead 1.44 percent to 2,001.1.

The MSCI world equity index, which tracks shares in 45 nations, was last up 0.52 percent, to 405.28.

Longer-dated U.S. Treasuries yields rose, as some traders positioned holdings for a possible increase in U.S. short-term interest rates in 2015. Federal funds futures, a proxy for traders’ bets on Fed policy, shifted the forecast for the first interest-rate increase to October 2015 from September 2015.

The benchmark 10-year Treasuries yield was 2.115 percent, up 4 basis points from late on Tuesday, while the 30-year bond yield was last at 2.742 percent, up 4 basis points from Tuesday’s close.

In currency markets, the dollar index, which tracks the greenback against six major currencies, was last up 0.90 percent as investors bet on a Fed rate hike in 2015.

But the dollar pulled back from recent gains against the Russian rouble, which has been hammered due to worries about increased U.S. sanctions and the effect of lower oil prices on Russia’s struggling economy. The dollar of late bought 61 roubles, down more than 11 percent on the day.

Russian shares were mixed, with the dollar-denominated RTS index up 14 percent, the first daily gains after a nine-day losing streak, while the rouble-based peer MICEX traded 2.1 percent lower.

Oil prices moved above $62 a barrel as U.S. data showed falling crude inventories, stemming deep losses brought on by a supply glut and signals from OPEC producers and Russia that they will not cut production. Prices later eased, with Brent crude last up 67 cents at $60.69 a barrel.

The global economy is ending the year in a fragile state, with weak growth in Europe and Japan and slowing demand in China.

German bund yields, which set the standard for euro zone borrowing costs, held near record lows reached on Tuesday. (Reporting by Michael Connor in New York; Editing by Leslie Adler)

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