HONG KONG - Stocks and currencies in emerging markets led an Asian rally Thursday following a surprise decision by the US Federal Reserve to keep its massive stimulus programme intact.
The announcement to hold off winding down its $85 billion a month bond-buying fuelled a buying spree on Wall Street, sending the Dow and S&P 500 to record highs.
And Asia took up the baton Thursday, with under-pressure developing economies breathing a sigh of relief after suffering a heavy sell-off in August as investors bet on the Fed tightening its monetary policy.
Manila jumped 2.81 per cent, or 177.74 points, to 6,511.70, while in the afternoon Jakarta surged 5.05 per cent, Mumbai climbed 3.33 per cent and Bangkok rose 3.66 per cent.
In Tokyo the Nikkei rose 1.80 per cent, or 260.82 points, to close at 14,766.18 and Hong Kong added 1.67 per cent, or 385.06 points, to close at 23,502.51. Sydney rallied 1.10 per cent, or 57.4 points, to finish at a new five-year high of 5,295.5, and Wellington added 1.05 per cent, or 49.21 points, to end at 4,753.03.
Seoul, Shanghai and Taipei were closed for public holidays.
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 it cut its growth forecast for this year and next as chairman Ben 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," he said.
Wall Street welcomed the announcement. The Dow rose 0.95 per cent, the S&P 500 climbed 1.22 per cent and the Nasdaq was up 1.01 per cent.
Will foreign investors return?
Most economists had expected the Fed to begin tapering its spending -- with forecasts of a reduction of $5 billion-$15 billion -- after weeks of upbeat data suggested the US economy was at last gaining strength.
But Matthew Sherwood, head of investment market research at Perpetual in Sydney, said: "It is a pretty patchy recovery, and it is a sign that the US is not ready for a reduced stimulus."
With the prospect of vast sums of cash continuing to be pumped into financial markets, the US dollar sank in New York to 98.13 yen from 99.20 yen in Tokyo earlier in the day, while the euro jumped to $1.3511 from $1.3353.
On Thursday the US unit bounced back against the yen, buying 98.81 yen, but the euro rose to $1.3530. The European single currency also fetched 133.68 yen against 132.55 yen.