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Dollar rallies after Fed keeps alive December rate hike

Federal Reserve Board Chair Janet Yellen announced the central bank kept interest rates on hold, but the prospects for a rate increase in December boosted the US dollar and financial stocks, pushing Wall Street to new records (AFP Photo/MARK WILSON)

The Dow edged to another record and the dollar rallied Wednesday after the Federal Reserve kept alive the chance of a December interest rate increase.

The US central bank concluded a two-day meeting by announcing that it would keep interest rates unchanged and begin to unwind a crisis-era stimulus program, both moves that were expected.

But news the Fed remains likely to go ahead with a third interest rate hike in December boosted Treasury bond yields, lifting shares of banks such as JPMorgan Chase and Bank of America and boosting the US currency.

Stock markets in Europe and Asia avoided major swings in anticipation of the Fed announcement.

However, Fed Chair Janet Yellen emphasized that the plans were not etched in stone.

In her quarterly press conference, Yellen said, "we think the economy is performing well, and we have confidence in the outlook for the real economy."

However, if a "negative shock to the economy were sufficient," the Fed would be prepared to act either but cutting interest rates or resuming the bond-buying stimulus program.

Kathy Lien, an expert on foreign exchange at BK Asset Management, called the Fed decision "unambiguously hawkish" for the dollar.

"The Federal Reserve believed that the hurricanes would not alter the economy's general course because spending is expanding at a moderate rate, investment increased and labor activity strengthened," she said in a note.

"While recent economic reports don't show these improvements, we can't diminish the Fed's overwhelmingly positive outlook."

The euro fell nearly one percent against the dollar at $1.1898.

The Dow edged up 0.2 percent to 22,412.59, its seventh straights record, while the Nasdaq pulled back from a record, losing 0.1 percent.

"The overall impression is modestly more hawkish," said Art Hogan, chief market strategist at Wunderlich Securities. "If you continue to see (bond) yields go up, you'll probably see more of a rotation" into financial stocks.

Overseas, ThyssenKrupp jumped more than two percent following news that it would merge its steel operations in Europe with those of Indian group Tata the combination to create Europe's second-largest steelmaker after ArcelorMittal.

Apple fell 1.7 percent on news its latest Apple Watch was encountering cellular connectivity problems.

US food companies came under pressure after General Mills reported earnings that missed analyst expectations. It tumbled 5.8 percent and Kellogg and Kraft Heinz both lost more than one percent.

- Key figures around 2100 GMT -

New York - DOW: UP 0.2 percent at 22,412.59 (close)

New York - S&P 500: UP 0.1 percent at 2,508.24 (close)

New York - Nasdaq: DOWN 0.1 percent at 6,456.04 (close)

London - FTSE 100: DOWN 0.1 percent at 7,271.95 points (close)

Frankfurt - DAX 30: UP 0.1 percent at 12,569.17 (close)

Paris - CAC 40: UP 0.1 percent at 5,241.66 (close)

EURO STOXX 50: DOWN 0.2 percent at 3,525.55

Tokyo - Nikkei 225: UP 0.1 percent at 20,310.46 (close)

Hong Kong - Hang Seng: UP 0.3 percent at 28,127.80 (close)

Shanghai - Composite: UP 0.3 percent at 3,366.00 (close)

Euro/dollar: DOWN at $1.1898 from $1.1994 at 2100 GMT

Dollar/yen: UP at 112.15 yen from 111.60 yen

Pound/dollar: DOWN at $1.3495 from $1.3521

Oil - Brent North Sea: UP $1.15 cents at $56.29 per barrel

Oil - West Texas Intermediate: UP 93 cents at $50.41 per barrel