NEW YORK Global equities jumped and the yen slumped against the dollar after the Bank of Japan stunned markets by introducing negative interest rates, while hopes the U.S. Federal Reserve will slow the pace of future rate hikes also underpinned stock gains.
The BOJ unexpectedly cut a benchmark rate below zero in another bold move to stimulate the Japanese economy as volatile markets and slowing global growth threaten the central bank's efforts to overcome deflation.
Global equities surged, the yen tumbled and sovereign debt rallied after the BOJ said it would charge 0.1 percent for excess reserves and may cut rates further if necessary, an aggressive policy pioneered by the European Central Bank.
The yield on benchmark 10-year Japanese government bonds JP10YTN=JBTC plunged to a record low of 0.09 percent, and the yen fell 2.32 percent to 121.57, on track for its biggest daily fall against the dollar in over a year.
The Nikkei share index .N225 whipsawed, but closed 2.8 percent higher. Shares on Wall Street and in Europe rose more than 1 percent, as did MSCI's all-country world stock index .MIWD00000PUS, which gained 1.15 percent.
"The BOJ decision was a massive surprise. It's further money printing from Japan on a massive scale after having told the markets that they're not doing it. That triggered European investors to push the risk-on button," said Will Hamlyn, investment analyst at Manulife Asset Management.
Weak U.S. gross domestic product data raised expectations that the U.S. Federal Reserve would go slow on future interest rate hikes, helping lift equity markets.
U.S. GDP rose at an annualized 0.7 percent in the fourth quarter, below an expected 0.8 percent gain, as a strong dollar and tepid global demand hurt exports.
The pan-European FTSEurofirst 300 .FTEU3 index rose 1.76 percent to 1,341.41.
The Dow Jones industrial average .DJI rose 211.21 points, or 1.31 percent, to 16,280.85. The S&P 500 .SPX gained 22.25 points, or 1.18 percent, to 1,915.61 and the Nasdaq Composite .IXIC added 51.85 points, or 1.15 percent, to 4,558.52.
Euro zone bond yields tumbled, with German yields set for their biggest monthly fall in two years following the BOJ's surprise move. U.S. Treasury yields fell to four-month lows.
Germany's 10-year Bund yield DE10YT=TWEB fell 6.5 basis points to 0.26 percent, its lowest level since late April 2015.
Benchmark 10-year notes US10YT=RR were last up 17/32 in price, pushing their yield down to 1.9244 percent after earlier sliding to 1.91 percent, the lowest since Oct. 2.
The euro EUR= fell to a session low against the dollar after the GDP report, dropping 1.16 percent to $1.0810.
The dollar index .DXY, tracking the dollar against a basket of major currencies, rose 1.276 percent to 99.756.
Oil rose to $35 a barrel, a gain of about 25 percent from the 12-year lows seen earlier in January, on prospects that a deal between major exporters to cut production could help reduce one of the worst oil gluts in history.
Brent futures LCOc1 rose 51 cents to $34.40 a barrel, while U.S. futures CLc1 rose 18 cents to $33.40 a barrel.
(Reporting by Herbert Lash; Editing by Nick Zieminski)
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