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Federal Reserve propels stocks, dollar higher

Dec 16 2016 11:11

(iStock)

New York - Stock markets in Europe scored big gains on Thursday, US equities resumed their upward march and the dollar rallied, a day after the Federal Reserve hiked interest rates.

The Fed decision on Wednesday to raise the benchmark interest rate was expected, but the announcement was more hawkish for the dollar than many expected because the US central bank signaled it expects three more rate increases next year instead of two.

The news sent the dollar spiking to a near 14-year high against the euro.

The yield on 10-year US Treasury bonds hit its highest level since the summer of 2014, having already soared in the wake of Donald Trump's surprise election victory.

"Many were expecting the Fed to try to temper rate hike expectations next year to try to avoid exacerbating the strength in the dollar," said Omer Esiner, analyst at Commonwealth Foreign Exchange.

The Fed's stance "effectively, gives investors a greenlight to continue bidding the dollar and bond yields higher."

Bank shares led equity markets in both Europe and the US.

Frankfurt's top gainer was Deutsche Bank, and the biggest winner in Paris was lender BNP Paribas, followed by Societe Generale and Credit Agricole. US banks also rose sharply.

"There could be no better news for the banking sector than higher rates," said London Capital Group analyst Ipek Ozkardeskaya, noting that the sector had struggled for years with the low global interest rate environment.

"Now, finally, they can see the light at the end of the tunnel.

Paris and Frankfurt each gained 1.1% in their first day of trading after the Fed announcement.

The London stock market meanwhile shifted into positive territory after the Bank of England held interest rates at a record low, closing just a tad shy of the key 7 000 level.

US stocks, which closed lower Wednesday after the Fed news, moved back into rally territory, with the Dow climbing 0.3% to 19 852.24, raising anew the possibility of the index hitting 20 000.

"We are back in a place where we are all expecting an environment that is pro-growth, pro-business, less regulation," said Art Hogan, chief market strategist at Wunderlich Securities.

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