A rise in US government bond yields brought a partial end Thursday to a Wall Street stocks rally triggered by an upbeat outlook from the US Federal Reserve, while oil prices tumbled.

Nevertheless, equities in Asia and Europe pushed higher after the Fed on Wednesday ramped up its outlook for the US economy and reiterated its pledge to maintain its ultra-loose market-friendly monetary policies for as long as needed.

Wall Street had rallied on the news Wednesday, with the Dow ending above 33,000 points for the first time, while the S&P 500 also chalked up a record.

Fed policymakers forecast the world's top economy to expand 6.5 percent this year, a full two percentage points above their earlier projection, thanks to trillions of dollars in government spending and the expected easing of lockdown measures that will allow people to get back to their daily lives.

And, crucially, the Fed continued to pledge that the record low interest rates that have been a key pillar of the year-long markets rally will not be touched for the foreseeable future, even if inflation surges.

But a rise in US government bond yields overnight cut short the rally on Wall Street.

Rising rates on US Treasuries in recent weeks has caused turbulence in the stock market as the higher yields are being seen as a concern by some investors that the $1.9 trillion stimulus programme will spark inflation.

That, they worry, could force the Fed to raise interest rates sooner than it has indicated it plans to do, which would upend some of economic assumptions that has underpinned the recent stocks rally.

Market analyst Patrick O'Hare at Briefing.com noted that after initially falling following the Fed meeting, US Treasury yields rose overnight.

"What the Treasury market heard and what it has been thinking overnight, though, have turned out to be two different things. The thinking overnight is that, 'the Fed risks playing with inflation fire and we don't like it.'"

The tech-heavy Nasdaq slumped 1.3 percent in midday trading, with the S&P 500 down 0.2 percent.

However the blue-chip Dow continued to rise, striking fresh records.

"The implication is that the stock market doesn't like so much what the Treasury market is thinking, because the jump in long-term rates is a threat to the high-multiple growth stocks," added O'Hare.

"Fed Chair Powell stuck to the party line, thereby inviting a test, and perhaps eventually a raid on the stock market party, by bond vigilantes."

Despite Wall Street stocks turning mixed, European equities ended the day on a positive note.

Frankfurt jumped 1.2 percent to hit a fresh record, with sentiment boosted partly by the flotation of Vantage Towers, the German phone masts unit of British telecoms giant Vodafone.

Paris edged 0.1 percent higher, and London rose 0.3 percent after the Bank of England also signalled it planned to keep interest rates at record lows for the foreseeable future.

The Federal Reserve's latest policy meeting was music to the ears of stock market bulls
The Federal Reserve's latest policy meeting was music to the ears of stock market bulls AFP / Daniel ROLAND

Meanwhile, oil prices tumbled by around five percent.

"Crude prices are declining for a fifth consecutive day as concerns grow that Europe won't have a regular summer" which means an expected rebound in demand will be softer than forecast, said analyst Edward Moya at Oanda.

A number of European countries are tightening restrictions as more contagious variants of the coronavirus have seen infections and hospitalisations surge, while vaccination campaigns have struggled due to limited supplies and worries about the AstraZeneca jab.

New York - Dow: UP 0.6 percent at 33,196.81 points

EURO STOXX 50: UP 0.6 percent at 3,871.44

London - FTSE 100: UP 0.3 percent at 6,779.68 (close)

Frankfurt - DAX 30: UP 1.2 percent at 14,775.52 (close)

Paris - CAC 40: UP 0.1 percent at 6,062.79 (close)

Tokyo - Nikkei 225: UP 1.0 percent at 30,216.75 (close)

Hong Kong - Hang Seng: UP 1.3 percent at 29,405.72 (close)

Shanghai - Composite: UP 0.5 percent at 3,463.07 (close)

Euro/dollar: DOWN at $1.1936 from $1.1979 at 2200 GMT

Pound/dollar: DOWN at $1.3949 from $1.3966

Euro/pound: DOWN at 85.57 pence from 85.78 pence

Dollar/yen: UP at 108.97 yen from 108.84 yen

Brent North Sea crude: DOWN 4.7 percent at $64.78 per barrel

West Texas Intermediate: DOWN 5.1 percent at $61.33 per barrel