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Dollar sinks, Asia stocks rally as dovish Fed spurs rush to risk

The dollar and US Treasury yields fell, while Asian equities and oil rallied Thursday after the Federal Reserve indicated it could soon cut interest rates, adding to optimism of a breakthrough in the China-US trade row.

The softer slant from the US central bank provided more support to global investors, who were already in buoyant mood after Donald Trump flagged positive talks with China's Xi Jinping and said they would meet next week.

After a much-anticipated meeting, Fed boss Jerome Powell said officials felt the case for a reduction had "strengthened", citing the trade standoff with China and weak inflation, adding it would "act as appropriate" to support growth.

The bank also dropped the word "patient" in describing its assessment of economic data, fuelling speculation of a reduction as soon as July.

"The forward guidance from the Fed was no longer about being patient but being pragmatic," said Kerry Craig, global market strategist at JP Morgan Asset Management. "As inflation is taking longer to return to target and trade uncertainty is weighing on the global outlook, the Fed is singing a dovish tune."

He added that Powell "walked a fine line, highlighting a level of confidence in the US economy, even as growth is expected to slow and vulnerabilities from global politics increase", which was enough not to cause concern to traders.

Analysts at NAB bank said "the change in the Fed’s bias has encouraged the market to increase its expectations that a new round of easing is just around the corner".

The news hit the dollar, which fell across the board on foreign exchanges with higher-yielding units boosted by a pick-up in risk sentiment. The South African rand was 1.8 percent higher, South Korea's won gained 1.2 percent and Canada's dollar rose 1.1 percent. There were also big gains for China's yuan, the Australian dollar, the Thai baht and Mexican peso.

It was even down against the euro, which has come under pressure since the European Central Bank hinted Tuesday at its own rate cuts, and the Brexit-battered pound.

- Crude prices surge -

The prospect of lower borrowing costs lifted equity markets on Wall Street, while the yield on US Treasuries fell below two percent for the first time since 2016 -- having been above three percent in November.

Tokyo ended 0.6 percent higher as traders shrugged off a stronger yen, Hong Kong rose one percent in the afternoon and Shanghai finished 2.4 percent higher, with Sydney up 0.6 percent.

Singapore added 0.8 percent, while Taipei was 0.1 percent up, though Wellington and Manila were slightly lower.

In early European trade London rose 0.5 percent, Paris jumped 0.7 percent and Frankfurt climbed 0.8 percent.

Focus now turns to the meeting between Trump and Xi on the sidelines of the G20 summit in Osaka next week, with optimism at its highest since last month after the US president's tweet about "a very good telephone conversation" with his Chinese counterpart.

On oil markets both main contracts were up more than two percent after official data showed a drop in US inventories -- indicating a pick-up in demand -- while OPEC and other producers led by Russia agreed a date to discuss further caps.

The dollar's sharp drop also provided healthy support, making the commodity more attractive to investors using other currencies.

The drop in stockpiles followed recent huge builds that had reinforced worries about the impact of the China-US trade war.

"When fused with... confirmation that presidents Trump and Xi have agreed to meet at the G20 -- undeniably a game-changer when it comes to the near-term outlook for oil markets -- and further backstopped by the chorus of central banks apparently on a mission to out-dove each other, oil prices are finding much better traction," said Stephen Innes, managing partner at Vanguard Markets.

While he tipped further volatility, he added that the meeting of OPEC and other key nations "should serve to provide the markets with a reasonable backstop and will offer some much-needed respite for prices".

- Key figures around 0720 GMT -

Tokyo - Nikkei 225: UP 0.6 percent at 21,462.86 (close)

Hong Kong - Hang Seng: UP 1.0 percent at 28,479.44

Shanghai - Composite: UP 2.4 percent at 2,987.12 (close)

London - FTSE 100: UP 0.5 percent at 7,440.17

Euro/dollar: UP at $1.1276 from $1.1231 at 2100 GMT

Pound/dollar: UP at $1.2698 from $1.2646

Dollar/yen: DOWN at 107.62 yen from 108.08 yen

Oil - West Texas Intermediate: UP $1.56 at $55.53 per barrel

Brent North Sea: UP $1.78 at $63.60 per barrel

New York - Dow: UP 0.2 percent at 26,504.00 (close)