Wall Street hits new high in wake of Fed's rate rise

SHARES SURGED to a new record on Wall Street and gained across Europe as financial markets hailed Tuesday's decision by the US Federal Reserve to raise rates by just 0.25 percentage points and maintain a neutral stance, in line with expectations.

In London, the FTSE 100 index climbed 79 points or 1.25 per cent to 6,394 - its highest intra-day level in more than a month - before losing ground to close at 6,369.5. The broad market Eurotop 300 index gained 1 per cent, while the narrower Euro STOXX 50 index of Euroland blue chips ended up 2 per cent. Paris stocks also closed up 2 per cent. On Wall Street the Dow Jones hit a new high of 11,326. But economists focused on growing concerns that a strong global recovery would mark the end of the era of low interest rates on both sides of the Atlantic. They focused on the Fed's statement that last year's cuts in rates to 4.75 per cent to cope with the Russian crisis were "no longer consistent with sustained, non-inflationary, economic expansion".

"This keeps the door ajar for further rate rises," said Stephen Lewis, chief economist at Monument Derivatives. He said the Fed would watch any data that pointed to inflationary pressures, starting with second-quarter GDP later today.

Yesterday, data showed that US home sales fell less than expected in July while orders for costly manufactured goods shot up at the fastest rate this year. "If I were the Fed and were looking at whether the domestic economy is slowing, I wouldn't be much comforted by these hikes," said Tim O'Neill of Bank of Montreal.

UK interest rates are lower than in the US for the first time since 1984. The differential boosted the dollar, which hit a four-week high against the pound of pounds 1.584.

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