World stocks post gains after US central bank pledges to keep rates low in 2014

LONDON - World stock markets rose on Thursday after the U.S. Federal Reserve pledged to keep interest rates low until late 2014 to nurture the country's stubbornly slow economic recovery.

The Fed cut rates to near zero in December 2008 during the financial crisis, and has held them there ever since. The announcement that it expected rates to remain low was a sign that the Fed expects the economy, which is improving, to need significant help for three more years. But it also reinforced investors' confidence that the Fed was willing to intervene to restore growth.

"With the FOMC sending out a strong signal that monetary policy is likely to remain accommodative for even longer than previously expected, risk assets are in a very good position," said Stan Shamu of IG Markets in Melbourne. FOMC stands for Federal Open Market Committee, the central bank's group of policy-setters.

The Fed's vow to help the economy pushed investors to snap up stocks, the euro, emerging markets currencies and commodities.

Britain's FTSE 100 rose 1.1 per cent to 5,785.42, Germany's DAX gained 1.3 per cent to 6,507.48 and France's CAC-40 added 1.0 per cent to 3,346.34. The euro was up 0.4 per cent at $1.3163.

Wall Street was likewise expected to rise on the open — Dow Jones industrial futures were up 0.3 per cent at 12,728 and S&P 500 futures rose 0.2 per cent to 1,323.30.

The news out of Europe helped strengthen market sentiment. An Italian bond auction saw a drop in the country's borrowing rates, further easing pressure on the country that is considered the next most vulnerable in the debt crisis but would be too expensive for Europe to rescue.

The resumption of talks on a crucial Greek debt relief deal also heartened traders. Greece and its bailout rescuers — other eurozone countries and the International Monetary Fund — are asking the country's private creditors to swap their Greek bonds for new ones with a lower value and interest rate.

The two sides have disagreed over what interest rate the new bonds should take and the hope is they will find a compromise in coming days. The creditors' representatives have said they aim to get a deal by Monday, when European leaders meet in Brussels.

In Asia, gains were more muted. South Korea's Kospi rose 0.3 per cent to 1,957.18 though Hong Kong's Hang Seng Index jumped 1.6 per cent to 20,439.14 on its first trading day since the Chinese New Year holiday. Benchmarks in Thailand, Singapore and New Zealand also rose.

Japan's Nikkei was 0.4 per cent lower at 8,849.47 as a weakening dollar pressured the country's exporters. Benchmarks in Malaysia and the Philippines also fell.

The dollar fell to 77.53 yen from 77.81 yen. The prospect of low interest rates dragged on the dollar, since it reduces the returns that investors get from holding assets denominated in that currency.

Markets in Taiwan and mainland Chinese remained closed for the Chinese New Year. Markets in India and Australia were closed for public holidays.

Benchmark crude for March delivery was up 61 cents at $100.01 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose by 45 cents to finish at $99.40 per barrel in New York on Wednesday. At one point it was as high as $100.40.

Oil prices have been torn between worries about slow economic growth on the one hand and tensions over Iran on the other. Iran has threatened to block crude shipments out of the Persian Gulf if Western nations don't retract their embargoes on the country. The EU and Australia were the latest to boycott the country in hopes of pressuring it to drop a nuclear program that they claim is meant to develop nuclear weapons.

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Pamela Sampson in Bangkok contributed to this report.