* Dollar at 14-yr high versus FX basket
* U.S. stocks advance; Dow still shy of 20,000
* Bond yields advance on Fed rate hike outlook
* European shares gain on stronger banks
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
(Updates with early U.S. markets activity; changes dateline,
By Caroline Valetkevitch
NEW YORK, Dec 15 The dollar hit a 14-year high
and government bond yields rose broadly on Thursday, extending
gains from a day earlier when the Federal Reserve hiked U.S.
interest rates and signaled increases would follow at a faster
pace next year.
U.S stocks bounced back from their biggest daily percentage
decline in about two months, led by gains in financial shares.
The Dow Jones industrial average again neared the 20,000 mark.
The Fed's rate rise of 25 basis points to 0.5-0.75 percent
was well-flagged, but investors were spooked when the "dot
plots" of members' projections showed a median of three hikes
next year, up from two previously.
Fed fund futures <0#FF:> slid to imply an almost 50-percent
chance that the Fed would raise rates three times, with two
hikes fully priced in already.
The central bank's decision to raise rates comes as U.S.
President-elect Donald Trump, who will be sworn in next month,
is expected to cut taxes and boost spending on infrastructure.
"While there still remains a cloud of uncertainty over how
economic policy may change under Trump's presidency, the same
rising optimism towards Trump boosting U.S. growth through tax
cuts and infrastructure spending may have played a key part in
the changes to the Fed's projections," said Lukman Otunuga, a
research analyst with FXTM.
The dollar index, which measures the greenback against a
basket of six major rivals, was last up about 1.7 percent
at 103.54, a 14-year high.
Bank shares helped lift stock indexes, on the prospect of a
boost to their profits.
The Dow Jones industrial average was up 142.06
points, or 0.72 percent, to 19,934.59, the S&P 500 gained
15.79 points, or 0.700756 percent, to 2,269.07 and the Nasdaq
Composite added 43.39 points, or 0.8 percent, to
European shares, up 1 percent, also rose with bank
stocks, while MSCI's all-country world stock index
was down 0.5 percent.
Bond markets saw yields on short-term U.S. debt surge to
The belly of the U.S. yield curve also climbed to multi-year
peaks, with U.S. five-year notes rising to their
strongest level in 5-1/2 years and seven-year notes
hitting almost three-year highs. Yields on U.S. two-year notes
touched more than seven-year peaks.
Benchmark 10-year Treasury prices were down 12/32
, yielding 2.567 percent, up 4 basis points from
levels late on Wednesday.
Emerging market stocks fell 1.8 percent. The Fed's
anticipated policy path, and expectations that Trump will get
growth motoring, are keeping emerging markets on edge as capital
gets sucked from more fragile, export-dependent economies toward
The allure of higher U.S. yields raises risks for emerging
markets, as funds look to take advantage of rising U.S. rates
rather than put their money in traditionally riskier economies.
Currencies such as the Singapore dollar and Korean
won came under pressure. Mexico, whose markets
have been battered hardest by Trump's threats to tear up trade
deals, holds a central bank meeting later, where it is expected
to hike its own interest rates in response to the Fed and try to
prevent further damage.
Among commodities, gold hit its lowest since early
February, while oil prices fell as the dollar rallied.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Marc Jones in London, Wayne Cole in
Sydney and Hideyuki Sano in Tokyo; Editing by Tom Heneghan and