By Rodrigo Campos
NEW YORK (Reuters) - The U.S. dollar index dropped to a five-month low on Thursday while shares on Wall Street rallied to lead global equities higher as a dovish U.S. Federal Reserve emboldened investors to take on more risk.
The S&P 500 briefly turned positive for the year and closed at its highest since Dec. 31, led by the materials and energy sectors. The Dow industrials ended above its 2015 closing level for the first time this year.
Traders continued to digest the previous day's statement and projections from the Fed, which scaled down to two its expectations of the number of U.S. rate hikes likely over the next nine months. It previously estimated four hikes through 2016.
As the dollar declined, commodity prices rose to their highest since December <.TRJCRB>, as did stocks across emerging markets <.MSCIEF>. Stocks in geographies and sectors heavily reliant on manufactured exports, like Japan <.N225> and European automakers, fell.
"It's a continued reaction from the Fed's move yesterday," said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas in New York. "It's a pretty equity-friendly backdrop."
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The Fed on Wednesday pointed to moderate U.S. economic growth and strong job gains while remaining cautious about risks from an uncertain global economy.
The Dow Jones industrial average rose 155.73 points, or 0.9 percent, to end at 17,481.49, the S&P 500 gained 13.37 points, or 0.66 percent, to 2,040.59 and the Nasdaq Composite added 11.02 points, or 0.23 percent, to 4,774.99.
Despite Europe's 0.1 percent decline, MSCI's gauge of shares in developed markets climbed 1.5 percent on the day to close at its highest since Dec. 31.
A more than 3 percent surge catapulted emerging market stocks <.MSCIEF> to their highest since December. Stocks in Brazil <.BVSP> rose 6.6 percent, the most for any day since early January 2009.
The jump in the yen, however, meant Japan's Nikkei <.N225> lost out, and it closed down 0.2 percent. Dollar-denominated Nikkei futures
A MATERIALS WORLD
The weaker U.S. currency boosted dollar-denominated commodities. Copper prices hit their highest since November, and were last up more than 2.7 percent.
Brent oil jumped 2.7 percent to $41.41 as a number of large producers agreed on a date to discuss an output freeze. U.S. crude rose 4.6 percent to $40.22.
"The remote possibility that a coordinated supply control effort comes from this meeting, assuming it even happens, has put market bears on the defensive," said Pete Donovan, broker with Liquidity Energy in New York.
An index of prices across the commodity complex <.TRJCRB> rose 2.2 percent to the highest level since mid-December.
In currency markets, the dollar sank against the euro, yen and Swiss franc. The dollar index touched its lowest since October 2015.
Against the yen , the greenback touched its lowest since October 2014. The sharp move triggered market chatter that the Bank of Japan had been speaking to dealers about activity in the yen. It ended down 1 percent at 111.42 yen.
Benchmark U.S. 10-year note yields fell to one-week lows, while two-year notes , the maturity most sensitive to Fed rate expectations, slid to a two-week trough.
The 10-year note was last up 11/32 to yield 1.8994 percent, compared with 1.938 percent late on Wednesday.
(Reporting by Rodrigo Campos, additional reporting by Dion Rabouin, Laila Kearney, Gertrude Chavez-Dreyfuss and Barani Krishnan; Editing by Dan Grebler)