San Francisco Frontiers - US stocks rally, dollar falls after Fed decision

The US central bank announced a quarter-point increase to the benchmark lending rate, taking the rate to a target range of 4.50-4.75 percent and opting for a more traditional hike after a series of larger increases.

Fed Chair Jerome Powell said the central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path as the central bank signaled more hikes would be needed.

But analysts noted that the Fed's policy statement acknowledged progress in battling inflation, adding that Powell in his press conference avoided criticizing recent movements in financial markets that anticipate a more dovish posture by the US central bank.

"Powell was expected to adopt a confrontational tone today. He was supposed to scold traders for allowing financial conditions to reflect fewer fed funds hikes and easing later this year," said a note from FHN Financial's Chris Low.

"Powell said that while the Fed has a different forecast than the one implied by markets, he is not bothered by the divergence."

Stocks were in the red prior to the Fed's announcement following a mixed session in Europe. But equities moved higher soon after the 1900 GMT press release, rallying further during Powell's press conference.

The S&P 500 finished up 1.1 percent, while the dollar retreated against the euro and other currencies, with analysts saying Powell's press conference was seen as "more dovish than anticipated," as Matt Weller of Forex.com put it.

Foreign exchange markets will have more big announcements to digest Thursday when interest rate decisions by the European Central Bank and Bank of England are unveiled.

Ahead of the European announcements, data Wednesday showed the eurozone’s annual inflation rate slowing further.

Consumer prices in January eased to 8.5 percent, down from 9.2 percent in December, helped by a continued slowdown in the pace of energy cost rises.

January's inflation rate was much lower than the forecast of nine percent by financial data firm FactSet. But economists warned against taking the data at face value.

"January's bigger-than-expected decline in headline euro-zone inflation should be taken with a big pinch of salt" because Germany's data were estimates only and "therefore likely to be unreliable," Jack Allen-Reynolds, senior Europe economist at Capital Economics, said in a note.

Elsewhere, oil prices fell sharply following a weekly US inventory report that showed increases in both crude and gasoline supplies.

- Key figures around 2150 GMT -

New York - Dow: UP less than 0.1 percent at 34,092.96 (close)

New York - S&P 500: UP 1.1 percent at 4,119.21 (close)

New York - Nasdaq: UP 2.0 percent at 11,816.32 (close)

London - FTSE 100: DOWN 0.1 percent at 7,761.11 (close)

Frankfurt - DAX: UP 0.4 percent at 15,180.74 (close)

Paris - CAC 40: DOWN 0.1 percent at 7,077.11 (close)

EURO STOXX 50: UP 0.2 percent at 4,171.44 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 27,346.88 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 22,072.18 (close)

Shanghai - Composite: UP 0.9 percent at 3,284.92 (close)

Euro/dollar: UP at $1.0995 from $1.0863 on Tuesday

Pound/dollar: DOWN at $1.2378 from $1.2320

Euro/pound: UP at 88.76 pence from 88.17 pence

Dollar/yen: DOWN at 128.90 yen from 130.09 yen

Brent North Sea crude: DOWN 3.1 percent at $82.84 per barrel

West Texas Intermediate: DOWN 3.1 percent at $76.41 per barrel

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