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Global stocks on a tear; gold sinks to $1,200; Treasurys steady

A trader works the floor of the NYSE.
Getty Images
A trader works the floor of the NYSE.

The surprise decision by the U.S. Federal Reserve to slow down its bond-buying program has been cheered by stock markets amid signs that the U.S. economy is improving. However some so-called "safe haven" global assets came under heavy selling pressure on Thursday.

In one of the most closely-watched central bank meetings of the year, the Fed announced Wednesday that it would start trimming its monthly asset purchases by $10 billion to $75 billion from January onwards. But to temper the market impact of the move, the Fed said its key interest rate would stay near zero "well past the time" unemployment falls below 6.5 percent.

(Read More: Now that Fed's out of the way, it's Santa's turn)

Although U.S. stocks fell on Thursday, Wall Street appeared to retreat after the prior session's Fed-inspired surge, after existing home sales fell 4.3 percent in November and new claims for jobless benefits climbed last week to a near nine-month high.

Emerging markets mixed

The buying continued overnight in Asia, with Japan's benchmark Nikkei closing 1.7 percent higher - its highest level since 2007 - as the yen hovered near a five-year low of 104.01 against the dollar. Australia's benchmark S&P ASX 200 closed at its highest level in over two weeks, while the Australian dollar pared losses after hitting a three-and-a-half year low overnight.

(Read More: Asia stocks mostly higher after taper; Nikkei at 6-year closing peak)

"The long awaited tapering came, with market reaction pretty positive, with stock markets overnight rallying hard on the back of the announcement," Grant Lewis, an economist at Daiwa Capital Europe said in a morning note on Thursday.

Emerging markets -- which came under heavy selling pressure in May triggered by concerns over the Fed cutting back its support -- were mixed. Indian shares fell 0.8 percent, while Indonesia's benchmark Jakarta Composite jumped 1 percent. Philippine shares ended modestly higher.

(Read More: Ding ding: Taper tantrum round two?)

Europe stocks soar

The pan-European FTSEurofirst 300 provisionally closed up 1.6 percent at 1,279.76 points, its highest point since early December. The index is up roughly 13 percent so far this year. All sectors posted gains and all major European indexes pushed higher on Thursday. The Spanish IBEX 35 closed higher by roughly 3.1 percent, the German DAX closed up around 1.5 percent and the French CAC 40 was higher by 1.5 percent.

(Read More: Europe shares bounce on Fed decison; 'Santa rally' begins; Saab soars)

European insurance stocks led the gains with a rise of nearly 2 percent. Banking stocks, construction and autos also saw heavy buying. Only 34 stocks were posting losses on the Euro Stoxx 600 in the morning session.

The Fed's change in forward guidance – which effectively moved the rate-hike goalposts back – was viewed by many analysts as proof that more liquidity would be pumped into the U.S. economy over the longer-term. Others took the Fed decision as yet another sign that the economy was improving.

"I think there's a general consensus that ... what the Fed is finally signaling is that the economy is doing better," said Bob Doll, Nuveen Asset Management chief equity strategist. "In 2014, the economy will be a bit stronger and a bit better."

Treasurys steady after fall

In the bond markets, yields on the 10-year benchmark Treasury ticked higher – close to 3 percent -- in recent months amid expectations that the Fed would take its foot off the gas. The 10-year yield rose to 2.92 percent following the news on Wednesday, but fell to end the day around 2.88, as investors digested the Fed's insistence that interest rates will stay low. On Thursday it closed at 2.887 percent.

Bill Blain, a senior fixed income broker at Mint Partners, said in a research note Thursday that there were only minor wobbles in the bond markets.

"Bernanke's soothing comments leave markets relatively unconcerned," he said. "Now it's all eyes on when this end of the easing cycle turns into tightening and real higher rates. That's still way down the line in 2015, but will become an increasingly obvious market factor."

(Read More: Fed taper positive sign for economy, bad for bonds)

Spot gold sinks

For gold, however, the Fed's decision added to its woes. The price of the precious metal – often considered a safe haven for investors during times of economic uncertainty - has plunged 27 percent this year and is on track for its worst annual performance in over two decades.

Its price fell 1 percent on Wednesday after the move by the Fed, and selling continued on Thursday, down 1.47 percent at 16:50 GMT. Spot gold fell to $1,198 an ounce -- its lowest level since June.

Daniel Morgan, global commodities analyst at UBS, said the reduction in central bank liquidity had further diminished the risk of inflation, which is negative for the precious metal often viewed as a hedge against inflation.

"I think gold will continue to be under pressure - the reasons to hold gold as a hedge against inflation don't seem to be there," said Morgan, who forecasts gold prices will average $1,200 over the next two years.

(Read More: Fed taper: A nail in gold's coffin?)

Mining stocks were the standout laggards in Europe as the price of gold fell. Fresnillo shares closed down around 3.98, Lonmin lost 0.82 percent and Randgold Resources closed down 2.68 percent.

— By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

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