Fed statement lifts stocks, bonds overnight

Trader Gregory Rowe, left, works on the floor of the New York Stock Exchange. File photo / AP

US equities and bonds gained after the Federal Reserve indicated it will keep interest rates low for "a considerable time," while also pointing to a pick-up in the economy.

"Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the Federal Open Market Committee said in a statement. "Labour market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly."

The Fed said it would reduce its monthly bond-buying program by US$10 billion to US$45 billion, as had been widely anticipated, and stressed that it will keep its benchmark interest rate steady.

"It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends," according to the Fed. That should go a ways to easing concerns about when rates could start to rise. Fed Chairman Janet Yellen had pegged the timing to as soon as six months after the bond-buying programme concluded.

In afternoon trading in New York, the Dow Jones Industrial Average added 0.34 per cent, while the Standard & Poor's 500 Index gained 0.17 per cent. The Nasdaq Composite Index slipped 0.07 per cent.

"The Fed is saying you have to look past the weak GDP numbers (released earlier in the day) and we are past that now," Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina, told Bloomberg News. "This sends a message that the Fed is firmly on course to continue tapering and wind down purchases by year end."

Shares in United Technologies and Goldman Sachs rose, up 0.9 per cent and 1 per cent respectively, leading the gain in the Dow.

US Treasuries also advanced, pushing yields on the 10-year bond three basis points lower to 2.67 per cent.

The latest economic data had offered a mixed picture, showing the US economy barely expanded in the first quarter, though companies last month hired more workers than anticipated.

Gross domestic product expanded at a 0.1 per cent annualised rate in the first quarter, while US employers increased payrolls by 220,000 in April. GDP had expanded at a 2.6 per cent rate in the final three months of 2013. The US government will release its key non-farm payrolls report for April on Friday in Washington.

Shares of Twitter sank, last down 10.1 per cent, while shares of eBay also dropped, extending Tuesday's slide and last down 4.9 per cent on Wednesday, after they were among companies that failed to produce inspiring results.

In Europe, the Stoxx 600 Index ended the session 0.1 per cent lower than the previous close. The UK's FTSE 100 and Germany's DAX both rose 0.2 per cent. France's CAC 40 fell 0.2 per cent.

Shares in BNP Paribas and Credit Suisse fell after reports the banks could face criminal charges in the US. BNP also said it may need to set aside more than the US$1.1 billion it already has to cover the cost of settlements with US authorities.