NEW YORK (Reuters) - U.S. stocks and crude oil prices rose and the dollar weakened on Thursday as investors bet the Federal Reserve's fresh dose of monetary stimulus would improve economic growth.
The U.S. central bank initiated another aggressive stimulus program, saying it will buy $40 billion of mortgage-backed debt per month until the outlook for jobs improves substantially as long as inflation remains contained.
Analysts said the Fed's move would have wide-reaching impact and was part of a global shift toward extra monetary stimulus.
"You're witnessing global economic stimulus across the board," said Quincy Krosby, market strategist at Prudential Financial. "The Fed's actions are occurring in conjunction with the European Central Bank's commitments to support the euro and amid talk that China could also deliver a stimulus package."
China's central bank cut interest rates in June and July and has lowered banks' reserve requirement ratio three times since late 2011 to free money for new lending. It could repeat those measures to help shore up the world economy.
Stocks made strong gains after the Fed released its statement, propelling the S&P 500 stock index to its highest close since December 2007. The prospect of even lower rates pushed investors to seek higher returns in riskier assets like stocks.
The Dow Jones industrial average ended up 206.51 points, or 1.55 percent, at 13,539.86. The Standard & Poor's 500 Index was up 23.43 points, or 1.63 percent, at 1,459.99. The Nasdaq Composite Index gained 41.51 points, or 1.33 percent, to 3,155.83.
The MSCI index of global shares rose 1.11 percent to 335.39.
The rally in riskier assets like stocks compounded the strong gains already scored in anticipation of Fed action.
Oil prices rose on expectations the Fed move would encourage investors to push money into riskier assets. including commodities and equities, even though analysts cautioned that the underlying weak conditions that motivated the Fed to act did not favour robust demand for oil.
October Brent crude rose 94 cents to settle at $116.90 a barrel, marking the sixth straight session the international benchmark has traded higher.
U.S. crude rose $1.30 to settle at $98.31 a barrel, off earlier highs of $98.58, the highest since $102.72 on May 4.
The dollar fell broadly, hitting a seven-month low against the yen and a four-month trough against the euro.
The euro, which rose as high as $1.3001, has also been aided by European Central Bank efforts to help euro zone nations struggling with heavy debt to contain their borrowing costs.
"The Fed news was very bullish for risk assets and people were quite comfortable selling the dollar against almost everything," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut.
U.S. Treasuries rose, their yields moving lower.
The benchmark 10-year Treasury rose 7/32 in price. Its yield eased to 1.74 percent from 1.76 percent late on Wednesday.
In contrast, the 30-year Treasury yield rose - but remained under 3 percent - as investors priced in a modest inflation premium in case the Fed's aggressive easing fuelled higher prices.
The Fed took another unprecedented step to try to drive U.S. unemployment lower by tying its unconventional bond buying directly to economic conditions.
The central bank also said it was unlikely to raise interest rates from current lows until at least mid-2015, extending the timeframe for such a move from late 2014.
The Fed said its purchases of $40 billion of mortgage debt per month to keep borrowing rates low would start on Friday.
By buying mortgage-linked debt, the Fed hopes to press mortgage costs lower and force investors into other assets, lowering their yields as well.
An index of U.S. housing shares rose 1.7 percent.
Additional reporting by Julie Haviv and Robert Gibbons in New York and Pedro da Costa and Alister Bull in Washington; Editing by Dan Grebler