(MENAFN- AFP) European stock markets rallied on Thursday after the US Federal Reserve boosted the climate of economic recovery by announcing plans to scale back its vast stimulus programme.
The dollar won strong support, hitting a five-year high of 104.37 yen in Asian deals, before profit-taking set in.
The Fed announcement did not spark any major movement in bond markets.
"Global equities were buoyed ... with the news that the Fed will begin tapering its bond purchases in January," said dealer Farhan Ahmad at brokerage Tradenext.
The US central bank said on Wednesday that it would cut its quantitative easing (QE) asset-buying scheme by $10 billion a month to $75 billion from January, citing data indicating the world's number one economy was strengthening.
The move to taper the purchases was accompanied by a decision to extend the period of very-low US interest rates.
In the middle of the year, the first signals that the Fed might begin to wind down its exceptional easy-money policies had hit markets, depressing leading stock markets and pushing up some bond yields.
Several emerging markets were hit particularly hard by an outflow of capital on renewed risk aversion. This pushed down their currencies and pushed up interest rates and bond yields.
In late morning European deals on Thursday, London's benchmark FTSE 100 index of top companies rallied 0.91 percent to 6,551.07 points.
Frankfurt's DAX 30 leapt 1.51 percent to 9,320.55 points, and the CAC 40 in Paris gained 1.49 percent to 4,170.52 compared with Wednesday's closing values.
"European markets have taken the lead from all time closing highs in the US," said Andy McLevey, head of dealing at online stockbroker Interactive Investor.
"With tapering of sorts largely priced into the markets the Fed decision to modestly trim the pace of the bond buying programme together with a dovish tone on forward guidance has encouraged investors at the strength of the US economy."
The news, which ended months of speculation over when the Fed would start scaling back the stimulus, sent Wall Street spiking to record peaks but drew a mixed response in Asia.
In New York deals, the Dow Jones Industrial Average soared 1.84 percent to 16,167.97 points, while the broad-based S&P 500 jumped 1.66 percent to 1,810.65.
In Asia on Thursday, the Tokyo stock market jumped 1.74 percent and Sydney rallied 2.08 percent, while Shanghai dropped 0.95 percent and Hong Kong shed 1.10 percent on Chinese economic concerns, traders said.
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases," the Federal Reserve's policy committee said in a statement Wednesday.
It added that it would likely take "further measured steps at future meetings" if the economy continues to improve.
Policymakers also said they would keep interest rates at record lows "well past the time" that the unemployment rate declines below 6.5 percent -- its previous cut-off point before tightening monetary policy.
Taper amount seen relatively small
While global markets have been falling on expectations of a taper, the relatively small reduction, and the likelihood of interest rates being kept ultra-low, provided a boost.
"News that the Fed will be reducing their bond purchasing programme by $10 billion a month is being received in a positive way as there is wide-spread relief that the Fed does not taper in a more aggressive way," said analyst Markus Huber at London-based brokerage Peregrine & Black.
"Furthermore it sends a strong signal that the US economy is on the right path to a self-sustaining recovery."
He added: "The Fed is managing this very well in providing clarity and certainty to investors and traders, clearly emphasising that any move in interest rates is not imminent."
In foreign exchange, the dollar went on to trade at 103.96 yen, down from 104.20 yen late in New York on Wednesday.
The greenback generally benefits from tighter US monetary policy as it means fewer dollars flowing around the financial system.
The European single currency stood at $1.3685 from $1.3680 on Wednesday.
Gold sank to $1,199.63 an ounce -- a level last seen in June. It later stood at $1,205.51 an ounce on the London Bullion Market, down from $1,230.50 on Wednesday.
Gold fell in reaction to the stronger greenback, which makes the dollar-priced precious metal more expensive for investors using weaker currencies.
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