Global shares turn positive after US Fed's tapering announcement

By Huw Jones and Elizabeth Dilts Marshall

NEW YORK (Reuters) - Global shares rose slightly on Wednesday after the U.S. Federal Reserve said it would end its pandemic-era bond purchases in March.

The announcement paves the way for three quarter-percentage-point interest rate increases by the end of 2022, as the Fed exits from policies enacted at the start of the global health crisis.

In new economic projections released following the end of a two-day policy meeting, officials forecast that inflation would run at 2.6% next year, compared to the 2.2% projected as of September, and the unemployment rate would fall to 3.5%.

MSCI's global gauge of stocks gained 0.10%, and the pan-European STOXX 600 index rose 0.26% after the Fed's statement.

At 2:45 p.m. EST/19:45 GMT, the Dow Jones Industrial Average was up 119.82 points, or 0.34%, at 35,664, the S&P 500 had gained 17.25 points, or 0.37%, to 4,651.34 and the Nasdaq Composite had added 23.45 points, or 0.15%, to 15,261.09.

U.S. 10-year Treasury yields were at 1.4701%, and the 30-year bond yield was at 1.8545%.

The prospect of rising short term rates supported the U.S. dollar, particularly against the euro and yen where monetary policy is expected to lag.

The dollar index rose 0.15%, with the euro down 0.11% to $1.1245.

The risk of rising cash rates has been a burden for gold, which offers no fixed return. Spot gold dropped 0.3% to $1,764.91.

Inflation is also an issue elsewhere, with British consumer price inflation surging to its highest in more than 10 years in November to 5.1%, exceeding all forecasts from economists ahead of a Bank of England rate-setting meeting on Thursday.

Investors sharply increased their bets that the BoE is about to raise rates.

"It's all eyes on the Fed, but the UK inflation data is an absolute disaster for the Bank of England - to all intents and purposes they should be hiking rates but the problem is Omicron and the uncertainty around that," said Michael Hewson, chief markets analyst at CMC Markets.

The European Central Bank meets on Thursday and is expected to dial back stimulus one more notch, but will pledge copious support for the next year, sticking to its long-held view that alarmingly high inflation will abate on its own.

Oil prices eased after the International Energy Agency said the spread of Omicron coronavirus variant would dent the recovery in global fuel demand. [O/R]

But U.S. crude settled up 0.20% at $70.87 per barrel and Brent settled up 0.24% at $73.88 per barrel.

 

(Additional reporting by Sujata Rao and Saikat Chatterjee; Editing by Alexander Smith, Alexandra Hudson, Jane Merriman, Philippa Fletcher)