* U.S. rates unchanged, to stay low for "extended" period
* Wall Street solidifies modest gains after rate decision
* Fed decision boosts euro, overcomes Spain rating cut
* Greek/German yield spread hits 1,000 bps before retreat
(Updates with U.S. market close, adds comment)
By Daniel Bases
NEW YORK, April 28 (Reuters) - The euro rallied from
one-year lows on Wednesday and U.S. share prices gained after
the U.S. Federal Reserve left interest rates near zero and gave
an upbeat assessment of the U.S. economy.
Just as the euro appeared to be recovering some ground from
Tuesday's sell-off, which had been spurred by Standard & Poor's
slashing of credit ratings for Greece to junk status and a
downgrade of Portugal, S&P on Wednesday cut Spain's rating one
notch, raising concerns of spreading sovereign credit risks in
the euro zone.
The Fed's decision to keep rates at "exceptionally low"
levels "for an extended period" undermined the U.S. dollar and
helped lift gold prices to highs for the year.
"The fact that the Fed is keeping rates low will be a
relief for stocks, which have been in a trading range
recently." said Subodh Kumar, chief investment strategist at
Subodh Kumar & Associates in Toronto.
"The downgrades in Europe are probably having an impact on
the way the Fed is thinking. The risk is that they get frozen
into their comments about extended periods since that's
language they don't need."
At the close, the Dow Jones industrial average <>
gained 53.28 points, or 0.48 percent, to 11,045.27. The
Standard & Poor's 500 Index <.SPX> rose 7.65 points, or 0.65
percent, to 1,191.36. The Nasdaq Composite Index <>
climbed 0.26 points, or 0.01 percent, to 2,471.73.
Energy and financial shares were the top U.S. performers.
JPMorgan Chase <JPM.N> rose 2.5 percent to $43.46 and Exxon
Mobil Corp <XOM.N> added 1.4 percent to $69.19.
EUROPE TALKS
Prior to the Fed's decision, the downgrade on Spain had
sapped the euro's efforts to regain ground on news of an aid
package that emerged from a meeting between German officials
and the head of the International Monetary Fund in Berlin on
Wednesday.
IMF Managing Director Dominique Strauss-Kahn estimated an
aid package for Greece at 100 billion to 120 billion euros over
three years, according to German officials who met with him.
"The hesitant and haphazard reaction of euro zone policy
makers to Greece's predicament underscores the dangers of
contagion," Marco Annunziata, chief economist at UniCredit
Group wrote clients.
"The euro zone has taken over six months to react and is
allowing uncertainty to persist nearly to the eve of the May
redemptions -- this does not bode well for their ability to
react quickly should a second flashpoint burst," he noted,
referring to Greek debt payments coming due next month.
The euro traded up 0.41 percent to $1.3218 in late New York
trade, after earlier hitting a one-year low of $1.3112 <EUR=>.
The U.S. dollar index, a measure of the greenback against a
basket of major trading-partner currencies, rose 0.08 percent
<.DXY>.
European share prices hit seven-week lows earlier in the
day on the sovereign credit concerns. S&P said the cut for
Spain was due to concerns about a more protracted period of
sluggish growth than previously expected.
The FTSEurofirst 300 <> index of top European shares
lost 1.15 percent to close at 1,056.89 points.
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.96 percent, having lost more than 2 percent on Tuesday. The
more volatile emerging market index <.MSCIEF> lost 1.64 percent
to add to 1.4 percent in the previous session.
Share prices in Tokyo lost 2.57 percent <>.
The 10-year Greek/German government bond yield spread
narrowed to 799 basis points after earlier peaking at more than
1,000 basis points <GR10YT=TWEB><DE10YT=TWEB>.
At one point the Greek government's two-year debt yield
surged to 38 percent. []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For euro zone debt crisis in graphics, click on:
http://r.reuters.com/fyw72j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. Treasuries fell back from Tuesday's gains after the
Fed said in its statement: "Economic activity has continued to
strengthen and ... the labor market is beginning to improve."
The solidifying of gains in equities undermined fixed
income markets. The 10-year benchmark U.S. Treasury fell 21/32
to 3.769 percent.
Spot gold recovered ground to make a new high for the year,
topping $1,174.18 <XAU=> before drifting lower, while U.S. gold
futures for June deliver <GCMO> on the COMEX division of the
NYMEX settled up $9.60 at $1,171.80 an ounce.
Oil rose as falling U.S. gasoline inventories and the Fed's
upbeat assessment of the economy offset concerns about Europe
after S&P's downgrade of Spain.
U.S. crude for June delivery <CLc1> rose 78 cents a barrel
to settle at $83.22 a barrel. London Brent for June delivery
<LCOc1> ended up 38 cents at $86.16 a barrel.
(Additional reporting by Ryan Vlastelica, Richard Leong, Frank
Tang, Ellen Freilich, Edward Krudy in New York, Jeremy Gaunt,
Atul Prakash and Jessica Mortimer in London; Editing by Leslie
Adler)
