Stock markets welcome US rate rise

image copyrightAP
image captionThe Fed's move had been widely expected

European shares have surged after the US central bank increased interest rates for the first time since 2006.

The UK's FTSE 100 index closed 0.7% higher, while the main share indexes in France and Germany saw much bigger increases.

The dollar also rallied against other currencies after the US Federal Reserve increased the range for its benchmark rate to between 0.25% and 0.5%.

But after a bright start, Wall Street lost ground in afternoon trading.

The Fed said the rise was part of a "gradual" process to get rates back to normal after years of being near zero.

At the close of the markets, London's FTSE 100 was up 0.7% at 6,102.54, while Frankfurt's Dax jumped 2.6% and the Cac 40 in Paris was 1.1% higher.

Stocks on Wall Street dropped in afternoon trading, having recorded big rises on Wednesday after the Fed's announcement.

The Dow Jones rose 1.3% on Wednesday, but on Thursday it closed down 1.43%.

However, analysts were upbeat about market performance running up to Christmas.

"With the uncertainty surrounding the Fed now cleared and panic not ensuing, everything is now in place for a strong end to the year," said Craig Erlam at Oanda trading group.

Carmakers, banks and insurers - stocks which do well when an economy is growing - rose.

'No nasty surprises'

On the currency markets, the dollar rose against major currencies following the Fed's decision.

Higher rates make the US a more attractive market for deposits, meaning demand for the dollar is likely to rise.

The dollar rose by 0.95% against the euro, to €0.9255, and by 0.76% against the pound to, £0.6722.

British government-issued bonds, or gilts, rose in price following the Fed decision, meaning lower yields, or income.

While the spectre of higher rates is often bad for existing debt prices, analysts said investors were pleased future Fed rate rises would be "gradual" in nature.

"Overall, there were no nasty surprises in there - the Fed sounded quite dovish, data-dependent, so I think fixed income markets were quite happy with it," Jason Simpson at Societe Generale.

More on this story