Asia stocks fall, dollar surges on Fed's optimistic tone

Credit: Reuters/Yuya Shino

Tokyo Stock Exchange (TSE) staff members work at the bourse at TSE in Tokyo October 16, 2014.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.5 percent in early Asian trade on Thursday.

Tokyo's Nikkei bucked the trend and rose 0.3 percent, taking heart from a significantly weaker yen.

In a statement after a two-day meeting on Wednesday, the Fed ended its quantitative easing program of bond purchases. At its peak, the program pumped $85 billion a month into the financial system.

The Fed did retain its basic guidance that overnight borrowing costs would remain near zero for a 'considerable time.'

But it dropped the characterization of the U.S. labor market slack as 'significant' in a show of confidence in the economy's prospects, the part markets perceived as containing a slightly hawkish bent by spelling a turn toward a new regime.

'The Fed was widely expected to end quantitative easing (QE) but barely anyone anticipated such a significant upgrade to their labor market assessment,' Kathy Lien, managing director at BK Asset Management in New York, said in a note to clients.

'The FOMC statement breathed new life into the U.S. dollar and looking ahead, we anticipate further gains in the greenback,' she said.

The dollar hovered near a three-week peak of 108.97 yen after surging nearly 0.7 percent in light of the Fed's statements, while the euro fetched $1.2625 after shedding 0.8 percent overnight.

The greenback benefited as U.S. Treasuries surged, with the benchmark 10-year Treasury note yield spiking to a three-week high of 2.362 percent as market participants pulled forward expectations of when the Fed would eventually raise interest rates.

The strength of the dollar was a blow to the New Zealand dollar, which tumbled on a softening stance over future interest rate increases by the Reserve Bank of New Zealand.

New Zealand's central bank held its benchmark rate at a five-and-a-half year high on Thursday, but dropped its explicit tightening bias, as it renewed its attack on the high level of the currency.

The New Zealand dollar fell as low as $0.7769 from around $0.7820 before the announcement. The kiwi has slid about 10 percent against the U.S. dollar from its three-and-a-half year high in mid-July.

(Editing by Jacqueline Wong)

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