Asian stocks up, US dollar down, bonds elated as Fed takes dovish tone

SYDNEY - Asian stocks rose, heading for a six-month high, after the Federal Reserve said data suggest U.S. economic growth has moderated and officials indicated interest rates will rise at a slower pace than previously forecast.

The MSCI Asia Pacific Index gained 1 per cent to 147.39 as of 9:00 a.m. in Tokyo, on course to close at the highest level since Sept. 9.

U.S. stocks and bonds jumped Wednesday as the Fed lowered its estimate for where the federal funds rate will be by the end of 2015 to 0.625 per cent, versus a December forecast of 1.125 per cent.

In a new set of quarterly projections, policy makers cut forecasts for economic growth and inflation.

"This is a very important development as it means that the Fed believes that the recent buoyancy in the U.S. labor market has not yet reached a level that warrants a rate hike," said Matthew Sherwood, head of investment markets research in Sydney at Perpetual Ltd., which manages about $21 billion. "The statement, I think, severely reduced the odds of a June rate hike expected by the market."

Australia's S&P/ASX 200 Index rose 1.3 percent. New Zealand's NZX 50 Index climbed 0.2 per cent as data showed its economy grew at its fastest pace since 2007 last quarter from a year earlier. South Korea's Kospi index added 0.9 per cent. Japan's Topix index slid 0.1 per cent after the yen jumped on Wednesday.

Fed-funds futures showed a 41 per cent chance the central bank will raise its benchmark rate to at least 0.5 per cent by September, according to data compiled by Bloomberg. Prior to Wednesday's policy statement, the odds were 55 per cent.

Yellen is preparing for an exit from the most aggressive easing in the Fed's 100-year history. The central bank is trying to reconcile a strong labour market with falling inflation as it moves closer to lifting borrowing costs this year.

China Futures Futures on the FTSE China A50 Index slipped 0.2 percent. Chinese shares on Wednesday rose to the highest level since May 2008 amid near-record turnover on speculation the government will do more to bolster growth. The Shanghai Composite Index has risen 77 per cent over the past 12 months. Markets in China and Hong Kong are yet to open.

E-mini futures on the Standard & Poor's 500 Index rose 0.1 per cent after the underlying gauge surged 1.2 per cent on Wednesday.

The US dollar meanwhile nursed punishing losses in Asia on Thursday after investors priced in a later start and a slower pace for future US rate rises, slashing Treasury yields and firing up Wall Street stocks.

The formerly friendless euro found itself up at US$1.0835, having jumped 2.8 per cent on Wednesday, while oil held gains of 6 per cent as the dollar retreat lifted commodities.

BLOOMBERG, REUTERS