U.S. shares, oil jump after Fed statement

By Herbert Lash

NEW YORK (Reuters) - Stocks on Wall Street rallied and oil prices jumped as much as 6 percent on Wednesday after the Federal Reserve indicated it preferred a more gradual path to normalizing U.S. interest rates even as it moved towards its first rate hike in almost a decade.

The dollar tumbled against other major currencies and the U.S. 10-year Treasury yield dipped below 2 percent for the first time since March 2 after the Fed appeared to argue against a June rate hike, as many in the market had expected.

Gold prices surged more than 2 percent, having dropped 3 percent since the start of the year on rate hike expectations.

The Fed, in its statement following a two-day meeting of policy-makers, slashed interest rate projections over the next few years and lowered its outlook on the U.S. economy.

"What's really significant is that they downgraded their assessment of the economy, and that means rates will stay lower for longer. And when they do start to rise, they will go at a much more muted pace," said Mary Ann Hurley, a fixed income trader at D.A. Davidson in Seattle.

Stocks on Wall Street rebounded sharply, rising more than 1 percent, while yields on the benchmark 10-year Treasury note fell 150 basis points on the day as markets bet on a September rate hike after the Fed's statement.

The Dow Jones industrial average closed up 227.11 points, or 1.27 percent, at 18,076.19. The S&P 500 rose 25.14 points, or 1.21 percent, to 2,099.42 and the Nasdaq Composite added 45.39 points, or 0.92 percent, to 4,982.83.

MSCI's all-country world index of equity performance in 46 countries rose 2.01 percent, while its emerging markets index <.MSCIEF> rose 1.84 percent.

Ten-year notes rose 1-8/32 in price to yield 1.9182 percent, after yielding as low as 1.906 percent. U.S. 30-year bonds added 2-7/32 in price to yield 2.5089 percent.

The dollar dropped to two week-troughs against the yen and was last at 120.07 yen, down 1.05 percent.

The euro hit one-week highs against the dollar and was last trading at $1.0833, up 2.25 percent, its biggest single-day gain since July 2010.

The dollar's fall powered oil higher. In post-settlement trading Brent climbed more than 6 percent.

Brent settled $2.40 higher at $55.91 a barrel. U.S. crude settled up $1.20 at $44.66 after falling more than $1 earlier on a rise in inventory data.

Expectations of the first Fed rate hike since June 2006, coupled with the start of the European Central Bank's asset-buying programme last week, had driven the euro down against the dollar and sparked a rally in European stocks in recent weeks.

Earlier in Europe, the FTSEurofirst 300 index of top regional shares rose 0.4 percent to close at 1,590.25.

The FTSEurofirst 300 is up more than 16 percent so far this year and Germany's DAX is up 22 percent, even after falling the past two sessions from Monday's record close.

Investors snapped up 3.3 billion euros of 10-year German Bunds , or almost twice the demand seen last month, as concern grows that the ECB's bond buying is creating a shortage of top-rated debt.

The bonds were auctioned to yield 0.25 percent, half the rate offered by the bond and down from 0.37 percent at the previous sale.

(Reporting by Herbert Lash; Editing by Leslie Adler, James Dalgleish and Dan Grebler)