LONDON (AFP) - European markets soared Thursday after the US Federal Reserve boosted confidence in the economic recovery by announcing plans to scale back its vast stimulus programme.

The dollar won strong support, hitting a five-year high of 104.37 yen in Asian deals, before profit-taking set in.

The Fed announcement did not spark any major movement in bond markets as was feared.

London's benchmark FTSE 100 index ended the day up 1.43 per cent at 6,584.7 points, while Frankfurt's DAX 30 jumped 1.68 per cent to 9,335.74 points and the CAC 40 in Paris climbed 1.64 per cent to 4,177.03 points.

Madrid soared 2.34 per cent and Milan rose 1.78 per cent.

While global markets had been falling in recent weeks on expectations of a taper, and had been hit hard earlier this year when the Fed first signalled it would begin cutting back its stimulus, the small reduction announced Wednesday buoyed markets which had already priced in a cut.

"News that the Fed will be reducing their bond purchasing programme by US$10 billion (S$12.5 billion) a month is being received in a positive way as there is wide-spread relief that the Fed does not taper in a more aggressive way," said analyst Markus Huber at London-based brokerage Peregrine & Black.

"Furthermore it sends a strong signal that the US economy is on the right path to a self-sustaining recovery." He added: "The Fed is managing this very well in providing clarity and certainty to investors and traders, clearly emphasising that any move in interest rates is not imminent." The US central bank said on Wednesday that it would cut its quantitative easing (QE) asset-buying scheme by US$10 billion a month to US$75 billion from January.

The move to taper the purchases was accompanied by a decision to extend the period of very-low US interest rates past its previous target of unemployment falling to 6.5 per cent.