Shares climb on US Fed rate rise expectation

Janet Yellen, chair of the U.S. Federal Reserve, testifies at a congressional Joint Economic Committee hearing Image copyright Getty Images
Image caption Federal Open Market Committee members including Janet Yellen are meeting to discuss monetary policy

Shares and bond markets have risen as investors get ready for what is expected to be the first rise in US interest rates in nearly a decade.

The Federal Reserve is expected to announce the start of the gradual rate rise process at 19:00 GMT.

US markets opened higher, but lost ground as oil prices slumped.

A US rate rise would have global repercussions, and could adversely affect emerging economies, experts say.

The US Federal Reserve is expected to raise its benchmark overnight interest rate from near zero, encouraged by a strengthening US labour market.

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Media captionBBC's World Business experts explain implications of US rate rise

Analysts have been speculating for months as to when the first rise might be, with global stockmarkets rising and falling as Fed rate meetings come and go.

Low interest rates have generally been helpful for stock market investors, but Fed officials have indicated the likely decision in advance, removing some of the uncertainty that investors dislike.

In London, the FTSE 100 gained 0.72% by the close of the market. Paris and Frankfurt markets made smaller gains.

Many Asian markets closed significantly higher - Japan's Nikkei 225 gained 2.6%, and Hong Kong's Hang Seng rebounded, rising 2%.

Rate rise repercussions

Markets have already priced in a US rate rise, but investors will also be looking at the Fed's announcement to gauge the likely path of future rate rises, analysts said.

"The overriding expectation is for a 25 basis point hike (which is more or less priced in already) while the real market-moving aspect will undoubtedly be the Fed's language for its indications as to the future pace of tightening," analysts at Accendo Markets said in a note.

The prospect of gradual rises could bring some stability to markets, but if the Fed were to raise rates more quickly, markets may take fright, analysts said.

The World Bank warned in September that a US rate rise could increase the risks to emerging economies caused by disruptions to capital flows.

With the US offering better returns, investors may decide to move money out of emerging economies.

Foreign governments could also have to pay more for debt issued in US dollars.

In the UK, the Bank of England is expected to follow the Fed's path, but not until at least the second quarter of 2016. The consensus has, however, slipped many times in recent months.

Any shock increases in borrowing costs in the UK could affect households with a high debt-to-income ratio, the IMF warned last week.

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