* Stocks rally, S&P closes at 29-month high, on optimism
* U.S. crude gains on equities rally, Fed statement
* Dollar slips as Fed's U.S outlook is less upbeat
* Bonds sag on view Fed is too gloomy on U.S. economy
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Jan 26 (Reuters) - World stocks and crude oil
gained on Wednesday, shrugging off a lukewarm outlook from the
Federal Reserve, as investors latched onto the growth prospects
of U.S. President Barack Obama's pledge to trim spending.
The U.S. dollar slipped and government bond prices pared
some losses after the Fed said high unemployment still
justified its $600 billion bond-buying program, despite recent
signs of a strengthening recovery. For details see:
[]
The broad S&P 500 Index closed at a 29-month high, led by
gains in commodity and tech shares, as investors largely
ignored the Fed's latest assessment of the U.S. economy.
[]
The Fed's outlook after a two-day meeting of policymakers
came on the heels of a government report that showed new-home
sales rose to an eight-month high in December, just the latest
data to signal a pick-up in economic activity.
"The market is not willing to buy into the Fed's vision,"
said Jim Vogel, interest rate strategist at FTN Financial in
Memphis.
Strong corporate earnings continue to support further gains
in equity markets, while commodities rebounded from sharp
losses the previous session on optimism about demand and supply
snags.
MSCI's all-country world stock index <.MIWD00000PUS> rose
0.6 percent.
The Reuters Jefferies CRB index <.CRB>, one of the broadest
measures of commodity prices, settled up 1.6 percent for its
strongest gain since Dec. 31. []
"By expressing disappointment about the employment
situation, the Federal Reserve is signaling that it will
continue to inject liquidity into the economy," said Mohamed
El-Erian, co-chief investment officer at Pacific Investment
Management Co. in Newport Beach, California.
"Only part of this liquidity will be absorbed by the U.S.
economy. The rest will leak elsewhere, resulting in large
capital flows to emerging economies and pressure on commodity
prices," he said.
On Wall Street, the Dow Jones industrial average <>
closed up 8.25 points, or 0.07 percent, at 11,985.44. The
Standard & Poor's 500 Index <.SPX> gained 5.45 points, or 0.42
percent, at 1,296.63. The Nasdaq Composite Index <> rose
20.25 points, or 0.74 percent, at 2,739.50.
The Dow rose above the 12,000 level intraday for the first
time since June 2008 before it pared those gains to close just
above break-even.
Stocks in Tokyo were poised to open flat, with the March
futures contract that trades in Chicago for the Nikkei 225
<0#NK:> at 10,455, or break-even.
Obama's annual State of the Union speech late Tuesday
helped bolster sentiment as the president signaled corporate
tax cuts, a retooling of the tax code and an end to pet
spending projects coveted by many lawmakers. []
Investors also ignored a report from the Congressional
Budget Office, which said the U.S. budget deficit in 2011 will
jump nearly 40 percent over prior forecasts, mostly due to the
mammoth tax-cut package brokered by Obama and lawmakers in
December. []
Data that showed new U.S. single-family home sales surged
to their highest level in eight months in December while prices
were the highest since April 2008 also bolstered sentiment and
raised cautious optimism for a housing market recovery.
[]
A weaker-than-expected outlook from Boeing Co <BA.N> pulled
its shares down 3.1 percent to $70.02 and weighed on the Dow.
[]
The dollar pared gains against the yen immediately after
the Fed statement, dropping to 82.20, but it rebounded to
session highs as U.S. benchmark yields rose.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 23/32 in price to yield 3.42 percent.
The dollar <JPY=> was up 0.05 percent at 82.24 yen, while
the euro <EUR=> was up 0.07 percent at $1.3698.
The dollar was down against a basket of major currencies,
with the U.S. Dollar Index <.DXY> off 0.29 percent at 77.779.
U.S. crude for March delivery <CLH1> settled $1.14 higher,
or 1.32 percent, at $87.33 a barrel, rebounding after six
straights days of losses on rising inventories as well as
worries about global economic recovery.
In London, the March contract for Brent crude <LCOH1>
settled up $2.66 at $97.91 a barrel.
Brent's premium <CL-LCO1=R> against U.S. benchmark crude
soared to a 24-month high of more than $10, the widest since
January 2009.
U.S. gold futures for February delivery <GCG1> settled up
70 cents at $1,333 an ounce prior to the Fed's announcement.
(Reporting by Angela Moon, Gertrude Chavez-Dreyfuss, Frank
Tang and Richard Leong in New York; Alex Lawler, Emma Farge,
Atul Prakash, Jan Harvey, Pratima Desai and Nia Williams in
London; Writing by Herbert Lash; Editing by Kenneth Barry)
