Financial Shares Climb as Investors Bet on U.S. Rate Rise -- 3rd Update

By Riva Gold and Kenan Machado Features Dow Jones Newswires

European bank shares jump

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-- Bonds and gold under pressure

-- Bank of Japan keeps policy unchanged

Global bank shares climbed Thursday and haven assets remained under pressure as investors ramped up bets that the Federal Reserve would tighten monetary policy.

Futures suggested Wall Street would hold steady near record highs, while the Stoxx Europe 600 rose 0.3% midday, led by a 1.6% advance in lenders following gains in their U.S. and Asian peers.

U.S. financial stocks rose Wednesday after the Fed's September meeting, helping lift the Dow Jones Industrial Average and S&P 500 to fresh records as higher rates tend to boost lending profitability.

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Fed officials on Wednesday kept the door open for a December interest-rate rise and said they would begin shrinking the U.S. central bank's portfolio of bonds in October.

"That's pretty symbolic for monetary policy around the world," said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset Management.

"I don't think it's going to be as much of a non-event as the Fed's language in the past few months makes it out to be seen," she added, pointing to expectations for U.S. Treasury yields to grind higher in the next six months.

Fed-fund futures tracked by CME Group, which are used by investors to bet on central bank policy, showed investors now see a 73.4% chance of higher U.S. interest rates by the end of 2017, compared with 57.7% a day earlier.

Yields on 10-year German government bonds rose to 0.475% Thursday, around a six-week high, from 0.435% Wednesday before the Fed decision, while 10-year Treasury yields steadied at 2.276%.

Shares of Germany's Commerzbank led gains in European banks following media reports of merger interest from Italy's UniCredit.

Shares of utilities companies in Europe and Asia, considered bond-proxies in the stock market, moved lower. Utilities are a favorite for investors seeking higher yields, so rising interest rates lessen their allure. European utilities companies were down 0.8% and telecommunications companies fell 1.1%, while in Australia, the S&P/ASX 200 slid 0.9% as the utilities subindex fell to its lowest level in 2017.

Also weighing down Australian stocks, but helping those in Japan and Europe was a jump in the U.S. dollar, which pulled metals prices lower. The WSJ Dollar Index, which tracks the greenback against a basket of 16 currencies, was last up 0.1%, after its biggest gain in a week on Wednesday.

Gold fell 1.5% to $1,296 an ounce, around its lowest since late August, while London-listed copper futures fell 1%.

Investors "may have expected a more dovish outcome" from the Fed, "especially on the interest-rate projections," said Steven Friedman, a senior economist at BNP Paribas Asset Management.

In Asian trading, Japan's Nikkei Stock Average edged up 0.2%, with insurers gaining on higher bond yields and exporters benefiting from a weaker yen.

Investors showed little reaction after the Bank of Japan left its policy unchanged Thursday, sticking to its massive stimulus program. New board member Goushi Kataoka voted against keeping the interest rate targets unchanged, saying they were insufficient for reaching the bank's inflation target.

Indexes elsewhere in Asia were little changed, with slight declines in Hong Kong, Shanghai and South Korea.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

September 21, 2017 07:28 ET (11:28 GMT)