(MENAFN - AFP) European stock markets soared on Thursday, joining a global rally as investors welcomed the US Federal Reserve's surprise decision to keep its vast stimulus policy unchanged, dealers said.
London's benchmark FTSE 100 index of top companies won 1.36 percent to 6,648.10 points in morning trade, Frankfurt's DAX 30 gained 1.27 percent to 8,744.73 points and the CAC 40 in Paris rose 1.09 percent to 4,216.06.
The euro raced to 1.3569 -- the highest level since early February -- from 1.3516 late in New York on Wednesday.
The Federal Reserve decided overnight to hold off from winding down its 85-billion-a-month bond-buying -- known as quantitative easing (QE) -- in a move which confounded market expectations.
"With tapering seen as all but certain, frenzy ensued last night when... the Fed held back, causing markets to soar," said Spreadex trader Alex Conroy.
"This move by the Fed comes as a shock to investors who had positioned themselves and effectively accepted that Chairman (Ben) Bernanke would start the reduction."
The Fed decision fuelled a buying spree on Wall Street, sending the Dow and S&P 500 indices to record highs.
Asian equities also rallied, with Hong Kong gaining 1.67 percent, Tokyo 1.80 percent and Sydney 1.10 percent.Markets cheer more easy money injections from Fed
Investors across the globe cheered the prospect of continued easy money injections into the world's biggest economy.
In an eagerly awaited announcement, the Fed said it would keep the stimulus in place as it wanted to further gauge the economic impact of public spending cuts and a spike in interest rates in the past four months.
Instead, the US central bank cut its growth forecast for this year and next as Bernanke warned of possibly "very serious consequences" from a brewing political battle in Washington over a new budget and the US debt ceiling.
"The Federal Reserve's policy is to do whatever we can to keep the economy on course. And so if these actions led the economy to slow, then we would have to take that into account, surely," he told reporters.
He said the bank could still start reducing the bond-buying -- which aims to hold down long-term interest rates -- in the next three months, but only if the economic outlook improves.
"There is no fixed calendar," Bernanke said.
Wall Street welcomed the announcement. The Dow rose 0.95 percent and the S&P 500 climbed 1.22 percent, both striking record closing highs.
Most economists had expected the Fed to begin tapering its spending -- with forecasts of a reduction of 5 billion to 15 billion -- after weeks of upbeat data suggested the US economy was at last gaining strength.Emerging markets breathe sigh of relief
Stocks and currencies in emerging markets also soared, with under-pressure developing economies breathing a sigh of relief after suffering a heavy sell-off in August, when investors had bet on the Fed tightening its monetary policy.
Jakarta stocks surged 4.64 percent, Manila jumped 3.08 percent, Mumbai climbed 2.73 percent and Bangkok rose 3.25 percent.
Emerging economies have suffered a huge outflow of cash since Bernanke in May hinted the Fed would begin tapering its bond-buying scheme, which had led to an investment splurge from foreigners looking for higher returns than in the US.
"Ben Bernanke had threatened to take away the punchbowl and bring the QE-party to an end. But he's changed his mind... and told us all to party on," said Societe Generale fixed income strategist Kit Juckes.
He added: "Emerging Markets is the asset class which suffered most from the 'taper talk' and is the one which is bouncing most as the removal of stimulus is delayed.
"Of course, 'delayed' is not the same as 'removed' and that will matter in due course but for now, relief just goes on."
The Fed's vast stimulus policy was launched last year to support growth of the United States economy, and has since fuelled strong stock market gains.