* Fed trims bond buying $10 bln to $75 bln, starting in Jan
* Markets reassured that US rates will stay low for a long
* Wall St jumps to record peaks, dollar surges past 104 yen
* Japanese shares seen rallying, Asian currencies holding up
By Wayne Cole
SYDNEY, Dec 19 (Reuters) - Global markets have reacted
surprisingly well to the long-dreaded decision by the Federal
Reserve to trim its stimulus, with Wall Street stocks at record
heights and the dollar above 104.00 yen for the first time since
After months of agonising, investors took the Fed's decision
to trim its bond buying by $10 billion to $75 billion as a
modest step and one the U.S. economy could well withstand.
The dollar was a major beneficiary, surging 1.6 percent to
104.32 yen while the euro fell back to $1.3675. The
broad-based slide in the yen was viewed as positive for Japanese
exports and profits, and thus for the Nikkei.
Crucially the Fed softened the blow by making its forward
guidance even more dovish.
"It likely will be appropriate to maintain the current
target range for the federal funds rate well past the time that
the unemployment rate declines below 6-1/2 percent, especially
if projected inflation continues to run below the Committee's 2
percent longer-run goal," the Fed statement showed.
Alan Ruskin, global head of G10 currency strategy at
Deutsche Bank in New York, noted the Fed's forecasts for the
funds rate had also been trimmed out to the end of 2016.
"This is a very dovish taper-lite where the Fed has done its
utmost to provide an offset with forward guidance," said Ruskin.
"It tends to elevate the importance of the inflation rate in
decision making should it be meaningfully undershooting target,
which is very constructive for risky assets."
The market seemed to agree, with the Dow ending
Wednesday up 1.84 percent, while the S&P 500 gained 1.66
percent and the Nasdaq 1.15 percent.
European markets had rallied earlier after
think-tank Ifo reported German business morale in December was
at its highest since April 2012.
The Fed's message that tapering was not tightening looked to
have resonated in debt markets as Fed fund futures
firmed all the way out to the early 2016 contracts. A first hike
in the funds rate is not fully priced in until November 2015.
Treasury yields were stable out for three years ahead, while
rising at the longer end as the yield curve steepened. Yields on
10-year paper increased 5 basis points to 2.89
percent, but remain below their 2013 peak of 3 percent.
Still, tapering could be a double-edged sword for some Asian
countries since it could accelerate the great rotation of funds
out of emerging markets and into developed world assets.
Indonesia, the Philippines, Thailand and India have all been
hit to a varying extent in recent months, though some are now
better prepared for the sea change.
Notably the mood around India has improved enough that the
country's central bank could hold off on hiking interest rates
on Wednesday, surprising many.
In commodity markets, gold was the main casualty of the Fed
move, and the resulting jump in the dollar. After gyrating
wildly, spot prices for the metal were off at $1,218.25 an ounce
and uncomfortably close to the year low at $1,211.80.
Oil markets shrugged off the Fed's decision, perhaps
encouraged by signs of a pick up in global growth. Brent crude
was up 84 cents at $109.24 a barrel, while U.S. oil
gained 58 cents to $97.80 a barrel.