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Yellen testimony shores up markets again

November 15, 2013

LONDON (AP) — The mood in financial markets remained optimistic Friday, a day after the main U.S. indexes struck all-time highs following a signal from the incoming Federal Reserve chief that the current massive stimulus will continue for some time yet.

Janet Yellen, who is slated to replace Ben Bernanke as Fed chief early next year, made clear Thursday that she’s prepared, if needed, to continue the central bank’s extraordinary efforts to pump up the world’s No. 1 economy when she’s chairman.

Yellen embraced her so-called “dovish” reputation and expressed strong support for the Fed’s low interest-rate policies during a two-hour confirmation hearing before the Senate Banking Committee. She warned critics that any potential harm those policies pose are outweighed by the risk of leaving a still-weak economy to survive without them.

Her statements convinced markets that the central bank won’t reduce its $85 billion of monthly bond purchases until at least March. Previously, there were expectations that the bond buying, which has kept interest rates low and sent a wave of investment into higher-yielding stocks, would be scaled back from next month.

In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 6,677 while Germany’s DAX — itself near record highs— rose 0.1 percent to 9,159. The CAC-40 was 0.2 percent higher at 4,292.

In the U.S., the Dow Jones industrial average was up 0.2 percent at 15,904 while the broader S&P 500 index rose 0.1 percent to 1,793.

“It’s almost ironic that equity indices are close to five-year highs, and adding to those gains, following Janet Yellen’s dovish testimony,” said Brenda Kelly, senior market strategist at IG. “This tends to negate the incoming Fed chairwoman’s categorical denials that a bubble may be forming in equities on the back of easy monetary policies.”

Yellen’s comments have also put a brake on the dollar’s recent advance against the euro, which nearly pushed back above $1.35 on Thursday. On Friday, the euro was up 0.4 percent at $1.3495 after lower than expected U.S. industrial production figures for October ramped up the selling pressure on the dollar.

“We have argued for some time that the accommodative policy position of the Fed suggests that dollar bulls will have to remain patient,” said Jane Foley, senior currency strategist at Rabobank International.

Earlier in Asia, Japan’s Nikkei 225 added 2 percent to 15,165.92 as the yen weakened, trading over 100 to the dollar. Hong Kong’s Hang Seng shot up 1.7 percent to 23,032.15 and Seoul’s Kospi jumped 1.9 percent to 2,005.64. Australia’s S&P/ASX 200 rose 0.9 percent to 5,401.70. Stock markets in Southeast Asia and mainland China also gained.

Update hourly