CORRECTED-GLOBAL MARKETS-Stocks soar, dollar, bond yields plunge on Fed decision
decision@ (Corrects headline, bullet point and lead to reflect bond yields, not prices, fell)
* Wall Street hits new highs as Fed keeps stimulus intact
* Fed decision not to taper bond buying catches market off guard
* Bond yields drop as Fed maintains purchases, dollar drops
NEW YORK, Sept 18 (Reuters) - U.S. stocks soared and gold jumped while the dollar and bond yields fell sharply on Wednesday after the Federal Reserve surprised investors by keeping its economic stimulus in place on concerns tighter financial conditions could slow the economy. The Dow Jones industrials and S&P 500 stock indexes shot to record highs after the U.S. central bank said it would continue buying bonds at an $85 billion monthly pace and wait for more evidence that economic progress can be sustained.
Gold, a traditional inflation hedge, soared more than 4 percent at one point and crude oil futures settled sharply higher as the Fed's move to leave its monetary stimulus program unchanged is largely seen as supporting commodity prices. Investors had widely expected the Fed, whose policy-setting committee ended a two-day meeting on Wednesday, to begin to trim its bond buying program by about $10 billion a month. "The initial reaction was positive, with people thinking, 'Here we go, more liquidity in the market.' That's a good thing as far as being an ongoing tailwind," said David Joy, chief market strategist at Ameriprise Financial in Boston, where he helps oversee $703 billion in assets under management. "But the decision also means the economy isn't as strong as we'd like, which has implications for corporate earnings down the road. I don't think we'll settle up where we popped." In its statement, the Fed said it would await evidence of a more stable economy before adjusting the pace of its asset purchases. The Fed also downgraded its forecast for U.S. economic growth to a range of 2 to 2.3 percent this year, down from 2.3 to 2.6 percent in its June estimates. The downgrade for next year was even sharper. The Dow and S&P closed at record highs, while the Nasdaq was at its highest since September 2000. The Dow Jones industrial average closed up 147.21 points, or 0.95 percent, at 15,676.94. The Standard & Poor's 500 Index advanced 20.76 points, or 1.22 percent, at 1,725.52. The Nasdaq Composite Index gained 37.94 points, or 1.01 percent, at 3,783.64.
HEADS YOU WIN, TAILS YOU WIN The market's reaction to the Fed's unexpected decision indicated stocks were in a bull market, said Ken Fisher, founder and chairman of Fisher Investments. "Up until today, they expected the beginning of the end of quantitative easing and the market rose every day (this week) into that. That doesn't happen, and the market reacts positively anyway. What does that tell you? It's a bull market," he said. "It likes it if it's heads, and it likes it if it's tails." About 580 stocks on the New York Stock Exchange and Nasdaq Stock Market hit new 52-week highs. About 325 stocks hit those highs after the Fed announcement. Trading was heavy, the biggest volume day since late June. Priceline.com Inc shot to an intraday high of $1,001, the first company in S&P 500's history to surpass the thousand-dollar mark. Shares in the online travel agency closed up 2.6 percent at $995.09. Spot gold rose as high as $1,366.39 an ounce, or about 4.3 percent on the day. U.S. Comex gold futures for December settled down $1.80 an ounce at $1,307.60 prior to the Fed statement. The dollar fell to a seven-month low against the euro and yields on U.S. government debt dropped to their lowest in more than a month. The dollar index fell as low as 80.203, the lowest since mid-February. It was last at 80.088, down 1.3 percent. The euro climbed to a seven-month peak of $1.3518 and last changed hands at $1.3516, up 1.19 percent. "The Federal Reserve remains quite concerned about the overall sluggishness of the economy, preferring to take the risk of being too loose for too long as opposed to tighten prematurely," said Mohamed El-Erian, co-chief investment officer at Pimco in Newport Beach, California. The Fed caught bond investors off guard. Investors had been pulling out of bond funds on expectations of higher yields, while others hedged bonds, mortgages and other fixed-income holdings vulnerable to a rate spike as the Fed looked set to begin the long road of withdrawing its stimulus. Benchmark 10-year notes were last up 1-10/32 in price to yield 2.6951 percent, down from 2.86 percent before the statement. They fell as low as 2.673 percent, the lowest since Aug. 13. Brent oil for November delivery settled $2.41 per barrel higher at $110.60. The previous session, Brent settled at a six-week low. U.S. crude for October delivery settled $2.65 per barrel higher at $108.07 a barrel after trading as high as $108.25.
(Reporting by Herbert Lash; Additional reporting by Marc Jones in London and Ryan Vlastelica in New York; Editing by James Dalgleish, Leslie Adler and Nick Zieminski)