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

By Riva Gold and Kenan Machado Features Dow Jones Newswires

Dollar, bank shares gain as investors digest Fed's stance

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-- Bonds, gold, utilities shares under pressure

-- Bank of Japan keeps policy unchanged

Global financial shares climbed Thursday while haven assets lagged after the Federal Reserve signaled it remained on track to raise interest rates later this year.

The Stoxx Europe 600 rose 0.4% in the early minutes of trading, led by banks and insurance companies after gains in their U.S. and Asian peers.

Shares of U.S. financial stocks rose and government bonds fell Wednesday after the central bank kept the door open for a December interest-rate rise and said it would begin shrinking its portfolio of bonds next month, signalling continued optimism about the economy despite low inflation. Higher rates tend to boost banks' net interest margins, a measure of lending profitability.

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CME Fed-fund futures, used by investors to bet on central bank policy, show investors now see a 68.5% chance of higher U.S. interest rates by the end of the year, compared with 57.7% a day earlier.

Many 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.

On Thursday, yields on 10-year German government bonds rose to 0.475% from 0.435% Wednesday before the Fed decision, while 10-year Treasury yields steadied at 2.277% after climbing to 2.276% Wednesday after the Fed to their highest since early August. Yields move inversely to prices.

As assets considered safe came under pressure, gold fell 1.5% to $1,297 an ounce, around its lowest since late August.

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 0.4% while in Australia, the S&P/ASX 200 slid 0.9% as the utilities subindex fell 2% to its lowest level this year.

Also weighing on Australian stocks but helping those in Japan was a jump in the U.S. dollar which dragged down metals prices. The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was last up 0.2% after its biggest gain in a week on Wednesday.

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

The dollar was last up 0.4% against the yen with markets showing little reaction after the Bank of Japan left its policy unchanged on 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.

Taiwan's TAIEX index rose 0.6% in the wake of HTC's $1.1 billion smartphone deal with Google.

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 03:52 ET (07:52 GMT)