By Marc Jones
LONDON (Reuters) - The dollar jumped and stock markets around the world were left flat-footed on Thursday after the Federal Reserve painted a relatively bright picture of the U.S. economy, boosting bets that it will hike interest rates in September.
Wall Street, which is in the midst of earnings season, was expected to open little changed, although that could change with second quarter growth data, due at 1230 GMT, which will give further insight into U.S. economic health.
Big name companies set to report include Colgate-Palmolive
Europe's main stock markets <0#.INDEXE> were holding onto a third day of modest gains as results from Siemens
There was no sign of the dollar wilting as it consolidated overnight gains against most of the world's main currencies following Wednesday's Fed meeting.
Fed officials had said they felt the economy had overcome a first-quarter slowdown, was "expanding moderately" and pointed to "solid job gains" in recent months despite a new downturn in the energy sector and headwinds from overseas.
Traders took it as a sign that the bank was nudging towards its first rate hike for almost a decade. The dollar was almost a cent higher against the euro than on Wednesday at $1.0955 and at a one week-high of 124.37 against the yen >.
Charles Schwab managing director, Kully Samra, said the U.S.-focused investment management firm's view was still that the Fed would push ahead with its first rate hike in almost a decade in September but then move cautiously.
"Because of the slow process we will see with this rate hike cycle, we don't think it will doom the bull market (in stocks)," he said.
"Mainly because it will send a message that the Fed is at the beginning of a normalisation process and it no longer needs to treat the patient as if it is in the trauma room."
EURO FIGHTERS
The Fed's message support U.S. bond yields overnight. The more sensitive two-year yields had hit their highest since early June but there was little impact on German Bunds and Europe's other core bond markets after the region's data deluge. [GVD/EUR]
Among surprises in the figures, German unemployment saw its biggest increase in more than a year while Sweden's second quarter economic growth beat forecasts, driven by surprisingly strong exports.
Confidence in the pan-euro zone economy rose unexpectedly to a four-year high in July as sentiment in industry, services and retail improved, although inflation expectations slipped after five consecutive months of gains.
That bolstered the view that the European Central Bank may have to prolong its 1 trillion euro stimulus programme that is now due to run till next September.
"The data is a bit mixed in the respect that the confidence data was all largely positive from the euro zone countries but there were some downside surprises on the inflation side so from a monetary policy side it is roughly neutral," Bank of Tokyo Mitsubishi's Derek Halpenny said.
GREAT FALL OF CHINA
The push and pull of stronger U.S. growth but potentially higher interest rates in coming months had seen Asian stocks tail off in late trade there.
Japan's Nikkei <.N225> ended up 1 percent and Australian shares <.AXJO> added 0.8 percent. But South Korean shares <.KS11> fell 0.7 percent while Chinese stocks took another near 3 percent tumble.
Chinese equities are already down more than 30 percent from their June highs, and the latest drop came after state media reported that banks were investigating their exposure to the stock market from wealth management products and loans collateralised with stocks.
"The market has been struggling to hover above the water with investors taking to the sidelines to see if stability can be maintained in the market," KGI Asia director, Ben Kwong, said.
With the dollar flexing its muscles again, commodity markets were also back under pressure with copper
The broad Thomson Reuters CRB commodities index <.TRJCRB> hit a fresh six-year low, while gold was flirting with a 5-1/2-year low at $1,085 an ounce as its appeal ahead of potentially higher global interest rates remained in question.
Oil prices, smarting from rising U.S. shale oil output and an easing of sanctions on Iran, were faring slightly better having bounced on Wednesday following an unexpectedly large weekly drawdown in U.S. crude inventories.
Front-month Brent crude futures
(Additional reporting by Saikat Chatterjee in Tokyo; Editing by Louise Ireland)
