A pledge to pump billions of dollars into the US economy until its faltering jobs market improves drove a rally on world markets today.
US Federal Reserve chairman Ben Bernanke last night unveiled the country's third round of quantitative easing - worth 40 billion US dollars (£25 billion) a month.
The move cheered investors today, with the FTSE 100 Index in London adding 1.4 per cent, France's Cac-40 moving 1.6 per cent ahead, the Dax in Germany adding 1.3 per cent and Asian markets closing higher.
Michael Hewson, senior market analyst at CMC Markets UK, said: “The extent of the easing would seem to suggest that despite the patchy nature of recent economic data there could well be something rotten simmering underneath the US economy, which the Fed feels it needs to mitigate against now.”
The move sparked a return to risk among traders, with mining stocks filling the rising board, including Evraz up 10 per cent, Kazakhmys ahead 10 per cent and Vedanta up 9 per cent.
The Fed's decision is potentially controversial as the US presidential campaign enters its final stretch, with Republicans likely to accuse the central bank of supporting President Barack Obama's re-election by boosting the economy as voters go to the polls.
But Mr Hewson said “the committee decided to throw caution to the winds and dispense with worrying about appearing political”.
The Fed said the US economy was too weak to reduce high unemployment without support.
It will buy mortgage-backed securities under the QE3 plan, which will continue as long as necessary.
The central bank said: “If the outlook for the labour market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”
The Fed added that “strains in global financial markets continue to pose significant downside risks to the economic outlook” in a sign of mounting concerns over the eurozone crisis and a weakening Chinese economy.
The QE3 bond purchases are designed to lower long-term interest rates to spur borrowing and spending.
The Fed previously launched two rounds of QE, buying two trillion dollars (£1.2 trillion) in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.
The Fed's decision sparked a rally in the price of gold, which was up at 1773.4 US dollars an ounce, as the stimulus move could add to the risk of inflation. The precious metal is seen as a hedge against inflation.