By Herbert Lash
NEW YORK (Reuters) - Global equities jumped and the yen slumped on Friday after the Bank of Japan stunned markets by adopting negative interest rates, while hopes the U.S. Federal Reserve will slow the pace of future rate hikes also underpinned stock gains.
The BOJ unexpectedly cut a benchmark rate below zero in another bold move to stimulate the Japanese economy as volatile markets and slowing global growth threaten the central bank's efforts to overcome deflation.
Global equities surged, the yen tumbled and sovereign debt rallied after the BOJ said it would charge 0.1 percent for excess reserves and may cut rates further if necessary, an aggressive policy pioneered by the European Central Bank.
The yield on benchmark 10-year Japanese government bonds > plunged to a record low of 0.09 percent, and the yen fell 1.87 percent to 121.03, on track for its biggest daily decline against the U.S. dollar in over a year.
The Nikkei share index <.N225> whipsawed, but closed 2.8 percent higher. Shares on Wall Street and in Europe rose more than 1 percent, as did MSCI's all-country world stock index <.MIWD00000PUS>, which gained 1.56 percent.
"The BOJ decision was a massive surprise. It's further money printing from Japan on a massive scale after having told the markets that they're not doing it," said Will Hamlyn, investment analyst at Manulife Asset Management. "That triggered European investors to push the risk-on button."
Advisory firm Oxford Economics said Japan's move, bringing to five the number of world central banks that have used negative interest rates, indicates they are here to stay - though their impact and effectiveness remain to be seen.
A sharp braking of U.S. economic growth in the fourth quarter raised expectations that the Fed would go slow on future interest rate hikes, helping lift equity markets.
U.S. gross domestic product rose at an annualized 0.7 percent, below an expected 0.8 percent gain, as a strong dollar and tepid global demand hurt exports.
The pan-European FTSEurofirst 300 <.FTEU3> index closed 2.27 percent higher at 1,348.08. For the month, the index fell 6.2 percent, its worst January since 2008, but better than a 12 percent decline at mid-month due to China growth worries.
The Dow Jones industrial average <.DJI> rose 281.13 points, or 1.75 percent, to 16,350.77. The S&P 500 <.SPX> gained 32.4 points, or 1.71 percent, to 1,925.76 and the Nasdaq Composite <.IXIC> added 71.37 points, or 1.58 percent, to 4,578.05.
Euro zone bond yields tumbled, with German yields set for their biggest monthly fall in two years following the BOJ's surprise move. U.S. Treasury yields fell to four-month lows.
Germany's 10-year Bund yield > fell 6.5 basis points to 0.26 percent, its lowest level since late April 2015. The 37 basis point decline in January was its biggest monthly drop since May 2012.
Benchmark 10-year notes > were last up 15/32 in price, pushing their yield down to 1.9313 percent after earlier sliding to 1.91 percent, the lowest since Oct. 2.
The euro > fell to a session low against the dollar after the U.S. GDP report, dropping 0.91 percent to $1.0837.
The dollar index <.DXY>, tracking the dollar against a basket of major currencies, rose 1.108 percent to 99.576.
Oil hit $35 a barrel, marking a gain of about 25 percent from 12-year lows seen earlier in January, on prospects that a deal between major exporters to cut production could help reduce one of the worst oil gluts in history.Brent futures
(Editing by Nick Zieminski and Bernadette Baum)
