Fed rate hike spurs fresh rally in Asia stocks

HONG KONG: Asian stock markets rallied for a second day yesterday and the dollar clocked up advances against most other currencies after the Federal Reserve finally lifted interest rates for the first time in almost a decade.

The widely expected move was met with a surge in shares in New York and Europe as well as Latin America as the US central bank reiterated its view that the world’s number-one economy is in rude health.

It also brings to an end months of speculation and uncertainty that had rattled world markets and fuelled concerns that the economy’s recovery was not as strong as thought.

“There’s a sense of relief that they finally raised rates,” said Chris Green, a strategist at brokerage and wealth management firm First NZ Capital Group in Auckland.

“This is a net positive in terms of market sentiment. It’s removed the point of lift-off from the discussion, we’re over that hurdle. Now the question is: how gradual is that normalisation profile and where do the risks lie,” he told Bloomberg News.

Fed chair Janet Yellen said the decision “recognises the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.”

Rates were cut to near-zero in 2008 by the Fed as part of a drive to fend off the ravages of the global financial crisis as it tore into the US economy, scything jobs and sending world stocks into free fall.

The bank now sees US growth picking up pace to 2.4% next year despite a slowdown in most other world economies, particularly China, and also stressed future rate hikes would be “gradual”, forecasting 100 basis points throughout 2016.

Yellen said the move represents a US economy that “is a source of strength to the emerging markets and other economies around the globe”.

However, she added that t here was still room for improvement in the jobs market while inflation was still below target.

Asian traders tracked global gains. Tokyo ended 1.6% higher, Shanghai put on 1.8% and Sydney climbed 1.5%. Hong Kong added 0.8% in the afternoon.

In currency trading the dollar pushed higher against the yen and euro in US trade and extended those gains in Asia yesterday. It bought 122.45 yen, compared with 121.87 yen yesterday in Tokyo, while the euro was at $1.0859 against $1.0936.