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September, 28, 2016

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Global equities advance on back of Fed decision

LONDON -- European stock markets rallied Thursday, after solid gains in Asia, as the U.S. Federal Reserve opted against lifting interest rates — but signaled action later this year.

The Fed kept its benchmark interest rate unchanged for the sixth straight meeting, saying it needs to see a bit more sign of strength in the U.S. economy.

However, Fed Chair Janet Yellen said the economy continues to broadly show progress. Officials indicated they foresee one rate hike before the end of 2016.

"Despite there being enough to suggest a rate hike in November or, even more likely, December, the markets were buoyed by the simple fact that the Federal Reserve opted for inaction," said Spreadex analyst Conor Campbell.

At the end of one of its most anticipated meetings for some time, Fed policymakers said the economy continued to improve and the argument for a rise was strengthening but more evidence of sustained progress was

needed.

However, while they lowered their growth forecast for this year, the policy committee said the rebound would continue through the second half, and suggested borrowing costs could rise before the end of the year.

Dollar Takes Hit

The Fed news has meanwhile sent the U.S. dollar sliding against the European single currency.

"Market expectations regarding the pace and trajectory of Fed tightening have altered dramatically since the start of last year," noted Rabobank analysts.

"The change in expectations over the period have had a dramatic impact on risky assets and on the U.S. dollar."

The bank left the benchmark federal funds rate at an ultra-low 0.25-0.50 percent, still above the negative rates of the European and Japanese central banks but well below what the Fed itself had envisioned at the beginning of 2016.

The decision to stick to the easy money policy came hours after the Bank of Japan overhauled its own stimulus program to target inflation and held off cutting interest rates further into negative territory.

Wednesday's announcements helped soothe recent investor concerns that the age of cheap cash — which has supported markets for years — could be coming to an end, fueling talk of an equity correction.

"With both the BOJ and the U.S. Fed doing nothing to upset the apple cart, the markets got what they wanted. And after selling off, have now bounced and look good technically," said Chris Conway, head of research at Australian Stock Report.

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 New Zealand keeps interest rates at record-low 2% but warns cuts likely 
A man is reflected on an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo, Wednesday, Sept. 21. (AP)

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