* Stocks rebound as Fed opens door to raising money supply
* U.S. dollar extends decline vs euro after Fed statement
* U.S. gold futures hit new record high after Fed meeting
* Bond prices trim gains on Fed policy-makers' statement
(Updates with market reaction following Federal Reserve
policy-making meeting, adds byline)
By Manuela Badawy and Herbert Lash
NEW YORK, Sept 21 (Reuters) - World stocks rallied and gold
prices hit new highs on Tuesday after the Federal Reserve
opened the door to bolstering the struggling U.S. economy by
increasing the money supply again.
U.S. Treasury yields fell after Fed policy-makers at the
end of a one-day meeting failed left short term interest rates
unchanged but said it would use all policy tools if needed to
bolster a sluggish economic recovery. []
The Fed also underscored its concerns over slowing
inflation in its statement on Tuesday, saying the underlying
rate of inflation was below levels consistent with its mandate
for price stability and full employment.
"This sets the table for QE (quantitative easing) in
November or December should it be necessary. They are now
outlining the key rationale for that -- low inflation, high
unemployment," said Eric Green of TD Securities.
World stocks as measured by MSCI<.MIWD00000PUS> rebounded
to trade 0.3 higher after the Fed statement.
Wall Street stocks also rallied. The Dow Jones industrial
average <> was up 46.85 points, or 0.44 percent, at
10,800.47 late afternoon in New York. The Standard & Poor's 500
Index <.SPX> was up 2.07 points, or 0.18 percent, at 1,144.78.
The Nasdaq Composite Index <> was up 3.72 points, or 0.16
percent, at 2,359.55.
After its August meeting, the Federal Reserve issued a
bleak assessment of the economy and the S&P 500 stock index
tumbled more 4.0 percent over the next four days.
"The across-the-board rally is consistent with markets
seeing the Fed as both able and willing to stimulate sufficient
growth and stable inflation," said Mohamed El-Erian, co-chief
investment officer at Pacific Investment Management Co., which
oversees more than $1 trillion in mostly fixed-income assets.
While stocks rallied on hopes that the Fed would boost
economic growth, gold prices spiked to a new high on fears that
government deficit spending and higher growth rates will spur
inflation. Spot gold prices <XAU=> rose to a new record high
around $1,288.50.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
28/32 in price, driving its yield down to 2.60 percent on the
prospect of further Federal Reserve purchases of U.S. debt.
The U.S. dollar was down against a basket of major
currencies, with the U.S. Dollar Index <.DXY> down 1.10 percent
at 80.439.
The euro <EUR=> was up 1.35 percent at $1.3241, while
against the Japanese yen, the dollar <JPY=> was down 0.75
percent at 85.04.
(Reporting by Jennifer Ablan, Rodrigo Campos, Chris Kelly,
Richard Leong and Nick Olivari in New York; Writing by Herbert
Lash)
