The euro held firm against the dollar, while European shares and gold moved higher on Thursday, after the U.S. Federal Reserve set out an unambiguously easier policy stance, but fears of a messy Greek debt default still haunt the markets.
Fed Chairman Ben Bernanke said the U.S. central bank might consider further monetary easing through bond purchases. It also pushed back the likely timing of an eventual interest rate hike to late 2014, and set a formal inflation target of 2 percent.
Riskier asset markets around the world gained immediately on the statement and the ultimate safe-haven, the U.S. dollar, eased.
We are definitely seeing risk-on at the moment, markets have got excited as economic growth helps bring down debt, said Louise Cooper, markets analyst at BGC Partners.
But it tells us an awful lot about the state of the economy in the United States. If the Fed is telling us interest rates are going to stay low the recovery must be fragile, she added.
The MSCI world equity index was up 0.6 percent to 318.38, extending its strong start to the year with gains of six percent in 2012.
The FTSEurofirst 300 <.FTEU3> index of leading European shares opened up 0.3 percent at 1,042.53 points. The index is up around 21 percent from its 2011 low it hit in September.
The euro was near five-week highs at $1.3110 though little changed on closing New York levels. While the dollar index <.DXY> eased to around of 79.40, near its a five week low.
The main surprise was they (the U.S. Fed) were unequivocally dovish in their statement which suggested they do not need data to deteriorate to justify easing monetary policy further, said Michael Sneyd, FX strategist at BNP Paribas.
We think this risk rally will last a bit longer, particularly in the commodity currencies. Against the euro there is still the overhang that we do not have any resolution to a Greek PSI (private sector debt) agreement, he added.
Greece remains in focus, as the top negotiator for private creditors is scheduled to return to Athens later on Thursday to resume talks with officials on a debt swap deal, as the clock ticks ahead of a March deadline when Greece faces major bond redemptions.
Investors will also look for the results from a debt auction in Italy on Thursday. Ten-year bond yields there remain above 6 percent, though they are down from peaks late last year above the perceived 7 percent danger level beyond which other countries had to seek bailouts.
Gold, which posted its biggest one-day gain in four months on Wednesday, was at its highest level in more than a month in choppy trade due to the Fed's pledge to keep rock-bottom rates for at least two more years.
In Europe Gold was steady at $1,709.89 an ounce after earlier hitting a high of $1,713.59, its highest since mid-December.
Low interest rates often makes zero-yielding gold more attractive, while minimal borrowing costs also tend to fuel a gradual increase in commodity prices, supporting gold's traditional role as a hedge against inflation.
The 10-year U.S. note's yield edged down to 1.97 percent from 2.002 percent in late U.S. trade.
FOMC statement word cloud: http://link.reuters.com/wud36s
Economic, rate projections: http://link.reuters.com/zud36s
Bernanke news conference: http://link.reuters.com/xud36s
For a 24-hour gold technical outlook: http://graphics.thomsonreuters.com/WT1/20122601092525.jpg
(Additional reporting by Joanne Frearson and Nia Williams in London)