09/18/2013 11:17 EDT | Updated 11/18/2013 05:12 EST

Global stock markets rally after Fed keeps monetary stimulus in place

BANGKOK - Global stock markets surged Thursday after the U.S. Federal Reserve unexpectedly refrained from reducing its massive economic stimulus.

Not even dour data out of Japan showing a swelling trade deficit could dampen the rally sparked by the Fed's decision to keep in place its $85 billion in monthly bond purchases, part of its "quantitative easing" approach of pumping money into the financial system to help stimulate the U.S. economy.

The Nikkei 225 in Tokyo shot up 1.8 per cent to close at 14,766.18, even though government data showed a bigger-than-expected trade gap. Imports, boosted by higher fuel costs, rose 16 per cent from a year earlier to 6.74 trillion yen ($68.7 billion) while exports gained 14.7 per cent to 5.78 trillion yen ($58.9 billion).

Investors had braced themselves for a slight reduction in monthly bond purchases. Instead, the Fed, at the end of its two-day policy meeting Wednesday, announced no timetable for winding down the stimulus and even threw in a note of caution: the U.S. still has not attained adequate levels of job and economic growth.

"Employment growth has been very weak ... Private sector GDP growth is slowing, not accelerating," analysts at DBS Bank Ltd. in Singapore said.

Investors ignored the Fed's cautious tone and instead cheered the retention of the stimulus program, which has helped bolster global stock markets.

European stocks opened higher. Britain's FTSE 100 gained 1.4 per cent to 6,649.35. Germany's DAX gained 1.2 per cent to 8,737.84. France's CAC-40 advanced 1.1 per cent to 4,214.80.

Wall Street looked set for more record highs, with Dow Jones industrial futures rising 0.3 per cent to 15,637. S&P 500 futures gained 0.3 per cent to 1,723.50. Both the Dow and the S&P 500 surpassed their previous record highs set on Aug. 2 on Wednesday.

Elsewhere, Australia's S&P/ASX 200 added 1.1 per cent to close at 5,295.50. Benchmarks in Indonesia and Thailand rose 4.7 per cent and 3.3 per cent respectively. The Philippines, India and Singapore also posted strong gains. Markets in South Korea and mainland China were closed for public holidays.

Hong Kong's Hang Seng advanced 1.7 per cent to 23,502.51. The benchmark index was led higher by blue chip property stocks, which rose on expectations that interest rates would remain low, said Linus Yip, strategist at First Shanghai Securities in Hong Kong.

The Hong Kong dollar is pegged to the U.S. dollar, which also means that interest rates in Hong Kong track the U.S., according to Yip. In its announcement, the Fed repeated that it plans to keep its key short-term interest rate near zero at least until unemployment falls to 6.5 per cent from its current level of 7.3 per cent.

"Interest rates may not go up so quickly. So for today, it is good for property," Yip said.

Hong Kong-listed Sino Land Co. soared 8.6 per cent. Henderson Land Development gained 4.2 per cent.

Benchmark oil for October delivery was up 51 cents to $108.58 per barrel in electronic trading on the New York Mercantile Exchange. The contract gained $2.65, or 2.5 per cent, to close at $108.07 on Wednesday.

In currencies, the euro rose to $1.3560 from $1.3516 late Wednesday. The dollar rose to 98.81 yen from 98.12 yen.


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