World shares and global bond prices surged on Thursday and the dollar tumbled after the U.S. Federal Reserve stunned markets by choosing not to cut back on its asset-buying programme for now.
From London to Tokyo, Istanbul to Jakarta investors celebrated the prospect of continued stimulus in the world's largest economy, even though the reasons behind it were concerns about the strength of U.S. recovery.
The Fed also cut its projection for 2013 economic growth to a 2.0 percent to 2.3 percent range from a June estimate of 2.3 percent to 2.6 percent. The downgrade for 2014 was even sharper.
MSCI's world share index, which tracks 45 countries, jumped 1.2 percent to a fresh five-year high as large gains in Asian markets were quickly matched in Europe where the FTSEurofirst 300 opened up over 1 percent.
The chance that U.S. interest rates could stay low for longer was further enhanced by news from the White House that noted-dove Janet Yellen was the front-runner to take over the Fed when Ben Bernanke steps down in January.
"The bottom line is that the (Fed) meant to send an extremely dovish message, not only through the lack of tapering, but also with its 2016 forecasts," analysts at Barclays wrote in their morning note.
"We have pushed out our first rate hike forecast to June 2015 from March and now expect 10 year U.S. Treasury yields to end this year at 2.85 percent from 3.10 percent previously."
All of which was a huge relief to emerging markets, which have been suffering as higher yields in the rich world attracted away much-needed foreign capital.
The Turkish lira and Indian rupee leapt more than 2 percent while Indonesia's main stock index climbed 4.8 percent, the Philippines 3.1 percent, Australia 1.1 percent and Japan's Nikkei 1.8 percent.
"Markets are thrilled, and much needed reprieve for battered EM investors is on its way," said Frederic Neumann, co-head of Asian economics research at HSBC. "With Chinese data having turned up, and the Bank of Japan running at full speed, it looks like Asia might get its mojo back."
FED PROTEST SEEN
The Fed's decision to keep its asset buying at $85 billion a month was seen as a rebuff to the sharp rise in Treasury yields over recent months, which was proving a headwind for the housing market and the U.S. economy in general.
The bond market got the message and 10-year Treasury yields tumbled as low 2.675 percent before steadying at 2.704 percent. That was an effective easing in world financial conditions as Treasuries set the benchmark for borrowing costs almost everywhere.
"This is a major Fed protest against the tightening of financial conditions," said Alan Ruskin, global head of foreign exchange strategy at Deutsche Bank in New York.
"The Fed is very worried that recent tightening of financial conditions is sizable and, probably more important, the back-up in yields is too swift to be able to comfortably conclude that the economy will not slow too much."
Yields on benchmark Japanese debt promptly dropped to four-month lows while in Europe German Bunds at 1.827 percent saw their biggest drop in yields since August last year.
The market's pushing back of the likely timing of the first hike in U.S. rates into 2015 sent the dollar tumbling across the board. The euro was up at $1.3533 after the early flurry of European deals, having already gained 1.2 percent on Wednesday to its highest in almost eight months.
Against a basket of currencies, the dollar lost 1.1 percent in under 24 hours to hit its lowest since February.
Only against the yen did it show some resilience, as the Bank of Japan is itself only in the early stages of a bond-buying programme even larger than that of the Fed.
HEADACHE OR HEADRUSH
U.S. equity investors had set the initial jubilant tone after the Fed's decision. The Dow Jones industrial average gained 0.95 percent, while the S&P 500 added 1.22 percent to a fresh all time high.
However, the Fed surprise also created a headache for central banks in Australia and New Zealand, which would much prefer their currencies to be weaker.
The Australian dollar surged 1.5 percent to $0.9498, an effective tightening in conditions that will pressure the Reserve Bank of Australia to cut rates to compensate.
In contrast, the extension of U.S. stimulus was seen as an unalloyed positive for global commodity demand, and prices.
Spot gold stormed ahead to $1,370.06, a gain of almost $70 from early Wednesday, while copper futures jumped 2 percent to $7,328.
Brent crude added another 34 cents to $110.98 a barrel, up from a low of $107.64 on Wednesday. U.S. crude reached $108.71 compared with $105.32 early on Wednesday.