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US: Stocks rise, dollar falls as Federal Reserve signals it could soon cut rates

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[NEW YORK] Wall Street stocks advanced and the dollar fell after the Federal Reserve signaled it could soon cut interest rates due to uncertainty over the economic outlook.

The gains in the United States were modest after Tuesday's heady sessions, which saw US and European markets rally on optimism over US-China trade talks and dovish commentary from European Central Bank chief Mario Draghi.

As expected, the Fed kept interest rates unchanged, but Fed chief Jerome Powell said many central bankers feel the case for an interest rate cut has "strengthened," noting that trade frictions with China have dimmed the growth outlook.

In its statement, the Fed said it "will act as appropriate to sustain the expansion" and dropped prior wording that it would be "patient" in assessing economic data, an omission that boosted expectations in futures markets that the Fed will cut interest rates in July.

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The more dovish statement followed up on a shift in tone from Mr Powell on June 4. Over the ensuing period, the Dow has gained more than six per cent.

Art Hogan, chief market strategist at National Securities, said the Fed's more dovish tilt was in line with expectations and largely priced in by financial markets.

The next big event will be the G-20 meeting, which will provide a forum for US President Donald Trump and Chinese leader Xi Jinping to try to hash out a trade deal.

"Where we are now is back to focusing on trade and putting monetary policy on the backburner," Mr Hogan told AFP.

The more dovish Fed tone weighed on the dollar, which had been boosted in the prior session by Draghi's statement that the ECB could cut interest rates if the economy slows much more.

Near 2100 GMT, the euro was still positive against the dollar, but not as much as it had been shortly after the Fed announcement.

That partial retreat reflects that even with the Fed's shift, "the market will be left with a US central bank that may not be as dovish as rivals in Europe and elsewhere, a dollar-positive notion," said Joseph Manimbo, senior market analyst at Western Union Business Solutions.

In other markets, the Bovespa index jumped 0.9 per cent to post its first-ever close above 100,000 points at 100,303.

After rising on Tuesday, oil prices ended a volatile session modestly lower after the Organization of the Petroleum Exporting Countries set its next meeting for early July in Vienna.

AFP