By PAN PYLAS
LONDON (AP) â¿¿ The unexpected decision by the Federal Reserve to keep its monetary stimulus continued to drive financial markets Thursday, a day after the U.S.'s main stock indexes hit record highs.
The Fed's decision Wednesday to maintain its $85 billion in monthly asset purchases was a surprise. Most Fed watchers were predicting that the central bank would begin the process of unwinding its stimulus, so-called "tapering." A $10 billion monthly reduction was the consensus. Instead, the Fed did nothing and chairman Ben Bernanke voiced worries over the state of the U.S. economic recovery and the still-high levels of unemployment.
The response in financial markets was immediate â¿¿ stocks around the world surged, with the major U.S. indexes and Germany's DAX striking record highs, while the dollar and U.S. government bond yields were pummeled. Commodities, such as oil and gold, were also in demand as were financial assets in many emerging markets as much of the money generated by the stimulus over the years has been invested around the globe to seek potentially higher returns."Given the extreme moves in financial markets overnight and this morning, some participants have been on the receiving end of a short and sharp lesson on the dangers of attempting to second guess the U.S. Federal Reserve," said Brenda Kelly, senior market strategist at IG. In Europe, the FTSE 100 index of leading British shares was up 1.3 percent at 6,641 while Germany's DAX rose 0.5 percent to 8,682. The CAC-40 in France was 0.6 percent higher at 4,196. A day after striking record highs, U.S. stock indexes were becalmed â¿¿ the Dow Jones industrial average was down 0.1 percent at 15,671 while the broader S&P 500 index was steady at 1,726. The repercussions of the Fed statement will likely influence markets for several days.