Dollar surges as Fed ends QE on hawkish note

NEW YORK (Reuters) - The dollar surged to a three-week high and government bond yields rose on Thursday, one day after the U.S. Federal Reserve took a more hawkish tone in its assessment of the economy as it announced the end of its six-year bond-buying program.

Global equity markets rose, as Wall Street stocks jumped in afternoon trading and European shares gained as investors were heartened by surprisingly strong third-quarter economic growth in the United States.

While the Fed's decision to no longer add to its holdings of Treasury bonds and mortgage-backed securities, a program which at its peak pumped $85 billion a month into the financial system, investors were somewhat surprised by the central bank's expression of confidence in the U.S. recovery, despite global growth concerns. The policy statement prompted financial markets to rethink the growing consensus that the Fed's first interest-rate hike would not be until late in 2015.

The Fed did note in its statement Wednesday after its two-day meeting that overnight borrowing costs would remain near zero for a "considerable time."

"The tone in the statement was relatively more hawkish than had been anticipated," said Mohannad Aama, managing director of Beam Capital Management LLC in New York. "The FX markets have concluded an interest rate hike is going to happen probably sooner rather than later."

The dollar rose 0.2 percent against a basket of six major currencies and rose 0.2 percent against the euro, to $1.2618. The benchmark 10-year Treasury note yield rose 7/32 in price to yield 2.296 percent.

MSCI's index of equities in 45 countries narrowly rose 0.04 percent. The pan-European FTSEurofirst 300 index of leading companies ended 0.6 percent higher at 1,327.58 points. The index has risen about 9 percent since a 13-month low hit on Oct. 16.

The Dow Jones industrial average rose 210.61 points, or 1.24 percent, to 17,184.92, the S&P 500 gained 13.8 points, or 0.7 percent, to 1,996.1, and the Nasdaq Composite added 18.15 points, or 0.4 percent, to 4,567.38.

Visa Inc surged 9.8 percent as the biggest boost to both the Dow and S&P 500 a day after it reported adjusted earnings that topped expectations, and said the mobile payment industry would be a "great driver" for business.

Gold slumped to a three-week low just under $1,200 an ounce, pressured by the strong dollar. Oil also fell, with Brent crude down 0.7 percent to $86.51 a barrel and U.S. crude down 1.1 percent to $81.25 a barrel.

In Brazil, the country's currency, the real, and stocks rallied on Thursday, a day after the central bank unexpectedly hiked interest rates, which signaled that President Dilma Rousseff may make market-friendly policy changes after her narrow re-election victory on Sunday.

The real jumped as much as 3 percent while the benchmark Bovespa index rose 2.8 percent. The real had hit a nine-year low against the dollar on Monday after Rousseff defeated challenger Aecio Neves.


(Editing by Meredith Mazzilli and Leslie Adler)