Fed rate hike spurs fresh rally in Asia stocks, dollar

Asian stock markets rallied for a second day Thursday and the dollar clocked up advances against most other currencies after the Federal Reserve finally lifted interest rates for the first time in almost a decade.

The widely expected move was met with a surge in shares in New York and Europe as well as Latin America as the US central bank reiterated its view that the world's number-one economy is in rude health.

It also brings to an end months of speculation and uncertainty that had rattled world markets and fuelled concerns that the economy's recovery was not as strong as thought.

"There's a sense of relief that they finally raised rates," said Chris Green, a strategist at brokerage and wealth management firm First NZ Capital Group in Auckland.

"This is a net positive in terms of market sentiment. It's removed the point of liftoff from the discussion, we're over that hurdle. Now the question is: how gradual is that normalisation profile and where do the risks lie," he told Bloomberg News.

Fed chair Janet Yellen said the decision "recognises the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans."

Rates were cut to near-zero in 2008 by the Fed as part of a drive to fend off the ravages of the global financial crisis as it tore into the US economy, scything jobs and sending world stocks into freefall.

The bank now sees US growth picking up pace to 2.4 per cent next year despite a slowdown in most other world economies, particularly China, and also stressed future rate hikes would be "gradual", forecasting 100 basis points over 2016.

Yellen said the move represents a US economy that "is a source of strength to the emerging markets and other economies around the globe".

However, she added that there was still room for improvement in the jobs market while inflation was still below target.

Asian traders tracked global gains. Tokyo surged 2.29 per cent by the break, Hong Kong added 1.3 per cent, Shanghai put on 1.6 per cent and Sydney climbed 1.8 per cent.

"What is clear is that equity markets are taking the rate hike as a positive," said IG Markets analyst Angus Nicholson.

"The fact that the Fed were able to hike rates indicates that the US economy has finally developed enough upward momentum to withstand higher interest rates," he added.

The rally comes after a torrid week for equities markets, which have been battered by concerns about the global outlook and plunging oil prices that have skittled energy firms.

On currency markets the dollar pushed higher against the yen and euro in US trade and extended those gains in Asia Thursday. It bought 122.54 yen, compared with 121.87 yen Thursday in Tokyo, while the euro was at $1.0857 against $1.0936.

The greenback was also higher against most emerging market currencies, including the Australian dollar, Malaysian ringgit, Thai baht and Singapore dollar. However, the rises were muted as most of the rate rise had been priced in previously, analysts said.