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Stocks on Wall Street surged and oil prices jumped as much as 5 per cent on Wednesday after the Federal Reserve indicated it preferred a more gradual path to normalising US interest rates even as it moved towards its first rate hike in almost a decade.
The dollar tumbled against other major currencies and the US 10-year Treasury yield dipped below 2 per cent for the first time since March 2 after the Fed appeared to argue against a June rate hike as many in the market had expected.
The Fed in its statement following a two-day meeting of policy-makers slashed interest rate projections over the next few years and downgraded its outlook on the US economy.
"What's really significant is that they downgraded their assessment of the economy, and that means rates will stay lower for longer. And when they do start to rise, they will go at a much more muted pace," said Mary Ann Hurley, a fixed income trader at D.A. Davidson in Seattle.
Stocks on Wall Street rebounded sharply, rising more than 1 per cent, while yields on the benchmark 10-year Treasury note fell more than 140 basis points on the day as markets bet on a September rate hike after the Fed's statement.
The Dow Jones industrial average rose 228.14 points, or 1.28 per cent, to 18,077.22. The S&P 500 gained 30.01 points, or 1.45 per cent, to 2,104.29 and the Nasdaq Composite added 58.46 points, or 1.18 per cent, to 4,995.90.
Ten-year notes rose 1-9/32 in price to yield 1.9165 per cent. US 30-year bonds added 2-5/32 in price to yield 2.5119 per cent.
The dollar dropped to two week-troughs against the yen and was last at 120.36 yen, down 0.82 per cent.
The euro hit one-week highs against the dollar and was last trading at $1.0799, up 1.91 per cent, its biggest single-day gain since October 2011.
The dollar's fall powered oil higher.
Brent settled $2.40 higher at $55.91 a barrel. US crude settled up $1.20 at $44.66 after falling more than $1 earlier on a rise in inventory data.
MSCI's all-country world index of equity performance in 46 countries was up 1.5 per cent.
Earlier in Europe the FTSEurofirst 300 index of top regional shares rose 0.4 per cent to close at 1,590.25.
The FTSEurofirst 300 is up more than 16 per cent so far this year and Germany's DAX up 22 per cent, even after falling the past two sessions from Monday's record close.
Investors snapped up 3.3 billion euros of 10-year German Bunds at a sale, or almost twice the demand seen last month, as concern grows the ECB's bond buying is creating a shortage of top-rated debt.
The bonds were auctioned to yield 0.25 per cent, half the rate offered by the bond and down from 0.37 per cent at the previous sale. Yields fell to 0.20 per cent.
