* U.S. stocks rise after Fed leaves rates unchanged
* S&P 500 closes at highest level since early Oct. 2008
* Fed reiterates low rates for extended period
* Euro boosted by S&P's affirmation of Greek debt rating
* Commodities benefit from U.S. dollar weakness.
(Updates markets after FOMC rate decision, adds comment)
By Daniel Bases
NEW YORK, March 16 (Reuters) - U.S. stocks and bonds
rallied on Tuesday, with the Standard & Poor's 500 closing at a
near 1-1/2 year high after the United States kept monetary
policy unchanged, with a nod to an improving economic
recovery.
However, the Federal Reserve's pledge to leave interest
rates near zero for an extended period of time accelerated the
U.S. dollar's decline and helped lift the euro and yen to fresh
session highs.
The weaker dollar also spurred a more than 2 percent rise
in the price of crude oil, a move that comes a day before an
OPEC meeting where investors expect no change in output targets
but a push for better compliance.
The Fed left rates in a range between zero and 0.25 percent
but the vote was not unanimous, with Kansas City Federal
Reserve Bank President Thomas Hoenig dissenting for a second
meeting in a row. []
"This is generally supportive for all asset classes on a
near-term basis. By keeping a more stimulative stand, they are
propping up the economy and asset valuations. That's good until
the economy is self-sustaining. But that is not now," said
Jason Pride, director of investment strategy at Glenmede in
Philadelphia.
Global stocks were already higher before the Fed's widely
expected decision, boosted with the help of Standard & Poor's
decision to affirm Greece's BBB-plus credit rating.
S&P's decision to end its review for a ratings downgrade
removed a potential blow to Greece's efforts to raise capital
in international markets to plug a gaping fiscal shortfall. A
modest improvement in German economic sentiment also helped the
euro's fortunes.
At the close, the Dow Jones industrial average <> rose
43.83 points, or 0.41 percent, to 10,685.98. The Standard &
Poor's 500 Index <.SPX> climbed 8.95 points, or 0.78 percent,
to 1,159.46. The Nasdaq Composite Index <> gained 15.80
points, or 0.67 percent, at 2,378.01.
Intel <INTC.O> helped lift the major indexes, gaining 3.97
percent to $22.01 after it released its newest server chips,
preparing for an expected rise in demand. The Philadelphia
semiconductor index <.SOXX> gained 2.69 percent.
[]
In Europe, banking shares led markets higher with the
pan-European FTSEurofirst 300 <> gaining 0.96 percent to
1,061.17 points, recovering lost ground following S&P's
decision on Greece.
"Sovereign debt problems are not a issue for equities
anymore. The market realized that the problem will be
addressed, so Greece is not an issue at this juncture," said
Franz Wenzel, strategist at AXA Investment Managers, in Paris.
European energy shares rose with the higher crude oil
prices, with Royal Dutch Shell <RDSa.L> rising 1.3 percent and
Total <TOTF.PA> up 0.6 percent.
MSCI's all-country world index <.MIWD00000PUS> rose 1.05
percent.
Japan's Nikkei closed 0.3 percent <> lower as the
market took a breather day after hitting a seven-week high.
CURRENCIES
S&P ended its review for a downgrade for Greece, saying the
government's recent deficit reduction measures are supportive
of the ratings. Concerns about Greek debt have been a drag on
equities in recent weeks.[]
The dollar fell against the euro in the wake of S&P's move
as well as the decision by ministers of the 16-nation euro
zone, which includes Greece, late on Monday to agree on ways
that would permit aid for Greece to be rapidly rolled out, but
gave no figures and few details.
European Union finance ministers on Tuesday backed the
plans to help Greece financially. []
"You have a slight improvement in risk because of the
reported deal from the EU ministers to aid Greece, although the
details are unclear," said Michael Malpede, market analyst at
Easy Forex in Chicago.
The euro was also supported against the dollar and yen
after the German ZEW institute's economic sentiment index came
in higher than expected. []
The greenback fell against a basket of major currencies,
with the U.S. dollar index <.DXY> down 0.69 percent at 79.695.
The euro <EUR=> rose 0.7 percent at $1.3771 from a previous
session close of $1.3673. Against the Japanese yen, the dollar
<JPY=> fell 0.3 percent at 90.28 yen from a previous session
close of 90.520.
The 10-year Greek government bond yield <GR4032666=TWEB>
dropped as low as 6.183 percent from around 6.29 percent just
before the S&P announcement, according to TradeWeb data, taking
the spread over benchmark German Bund to 305 basis points from
315 basis points.
Benchmark 10-year U.S. Treasury notes <US10YT=RR> were
rose 12/32 of a point in price, pushing the yield down to 3.65
percent from 3.70 percent late on Monday.
Longer-dated Treasuries rose on the Fed's low rate stance,
indicating it is not concerned about inflation, the bane of
fixed income investments.
In commodity markets, U.S. light sweet crude oil <CLc1>
settled up $1.90, or 2.38 percent, to $81.70 per barrel.
OPEC is expected to keep output unchanged at its Wednesday
meeting in Vienna, with Saudi Arabia's oil minister saying the
producers' group may not need to adjust output policy this year
if the oil market remains stable.
Spot gold prices <XAU=> rose $19.45, or 1.76 percent, to
$1,127.55.
(Additional reporting by Wanfeng Zhou, Ryan Vlastelica and
Chris Reese in New York, George Matlock, Ian Chua, Tamawa
Desai, Jessica Mortimer and Brian Gorman in London; Editing by
Kenneth Barry)
