new York 09 14, 2012, 00:00 IST
U.S. stocks and crude oil prices rose while the dollar weakened on Thursday as investors bet that the Federal Reserve's fresh phase of monetary stimulus would support economic growth.
As part of a new round of quantitative easing, the Fed said it would buy $40 billion of mortgage debt per month to keep borrowing rates low, starting on Friday, and would keep its benchmark interest rates "exceptionally low" until the middle of 2015.
Stocks jumped, with the S&P 500 index on track for its highest close since December 2007, as lower interest rates make riskier assets like stocks more attractive.
The Dow Jones industrial average gained 76.35 points, or 0.57 percent, to 13,409.70. The Standard & Poor's 500 Index gained 7.29 points, or 0.51 percent, to 1,443.85. The Nasdaq Composite Index gained 14.21 points, or 0.46 percent, to 3,128.52.
The MCSI index of global shares rose 0.87 percent to 334.62.
The Fed gave the market "what it wanted," said James Meyer, chief investment officer at Tower Bridge Advisers in West Conshohocken, Pennsylvania. "Stocks immediately shot up."
Oil and gold prices advanced but long-dated Treasury yields rose, in part because the Fed's commitment to low interest rates for several years could foster inflation.
The Fed wants to stir some inflation expectation to help spur economic activity. The U.S. dollar weakened, as easier monetary conditions might lower short term interest rates.
Analysts noted that the Fed's move has wide-reaching impact in part because it is part of global shift toward extra monetary stimulus.
"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," said Quincy Krosby, market strategist at Prudential Financial. "You're witnessing global economic stimulus across the board."
The dollar hit a seven-month low against the yen and a four-month trough against the euro. The euro, which rose to $1.2962, has been aided by European Central Bank efforts to aid struggling euro-zone nations burdened by debt.
In its policy statement released at the end of a two-day policy meeting, the Fed said it would continue to buy mortgage related debt and other securities until the outlook for jobs improves "substantially" so long as inflation remains contained.
China's central bank also cut interest rates in June and July and has lowered banks' reserve requirement ratio (RRR) three times since late 2011 to free money for new lending. It could repeat those measures to help shore up the world economy. In early July, China, the euro zone and Britain loosened monetary policy within less than an hour of each other.
Brent crude oil prices rose 79 cents to $116.75 per barrel.
Long-dated U.S. government debt prices turned negative while shorter maturities rose. The modestly wider difference between short- and long-term yields reflected a modest inflation premium being factored into long-term U.S. government bonds.
The benchmark 10-year Treasuries traded down 8/32 in price, its yield rising to 1.79 percent. Two-year Treasuries were unchanged, yielded 0.25 percent.
The 30-year bond fell 24/32 in price to yield 2.96 percent.
