Markets rebound as Fed cools on early rate rises

Goldman Sachs Group Inc. recommends an outright long gold position into next year

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Gold hovered near a two-week low on Wednesday as the dollar remained buoyant ahead of a speech by US Federal Reserve Chair Jerome Powell that is expected to offer clues on the central bank's monetary policy. The fear of higher USA interest rates - fuelled by a surging economy - has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the U.S. looking for better, safer returns.

With the Fed signaling fewer than three rate hikes next year, investors are being forced to adjust their U.S. Treasury bond and Japanese Treasury bond portfolios. It had forecast two earlier this month.

Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in NY.

Shares of Caterpillar and Boeing, companies with high overseas revenue exposure, rose 4.2 percent and 1.2 percent, respectively.

The Bloomberg Dollar Index sank the most in two weeks, fueling speculation its two-month rally may be over.

The 10-year yield fell about 5 basis points in the past week to close at 2.99 percent Friday, while the gap between 2-year and 10-year debt - a widely watched curve metric - touched as little as 19 basis points, the least since August.

Sterling, meanwhile, gained 0.6 percent after the Bank of England warned about the economic risks from Britain exiting the European Union without a deal.

Investors say a sustained market rally following the summit would hinge on there being substantive concessions from Trump, in particular whether Xi can persuade Trump to postpone a sharp tariff hike on Chinese goods due to take effect January 1.

Factually, Powell's remarks on Wednesday and in October are both true. "Now investors are true believers - and are reacting accordingly". Many economists also worry about potential economic damage caused by President Donald Trump's trade conflicts with China and other nations.

Thursday sees the release of the minutes from the Federal Open Market Committee's November meeting.

The S&P 500 index rose 61 points, or 2.3 percent, to 2,743. NY time, the biggest three-day gain since June.

The Dow climbed 617 points, or 2.5 percent, to 25,366, its biggest gain in eight months.

The dollar, which has outperformed bonds and the benchmark S&P 500 stock index this year amid rising interest rates and safe-haven flows triggered by global trade tensions, was flat on Thursday.

On currency markets, the euro edged 0.2 percent higher at $1.1370 after advancing 0.7 percent the previous day. Brent crude ended Dollars 1.45, or 2.4 percent, lower at $58.76.

Germany's 10-year yield was steady at 0.35 percent.

-With assistance from Alexandra Harris and Katherine Greifeld.

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