LONDON (AP) — A pledge by the Federal Reserve to keep extremely low interest rates for another couple of years has calmed investors' jitters, sending stock markets around the world higher Wednesday.
The Fed's surprise announcement Tuesday that it would likely keep its Fed funds rate at near zero percent through 2013 to help the ailing U.S. economy helped Wall Street surge late in the session — the Dow Jones industrial average rallied 6 percent just in the final hour of trading, one of the biggest turnarounds ever seen.
That continued into the Asian and European trading sessions, although traders remained nervous after the market turmoil of recent weeks, which has sent many global markets officially into bear market territory — falling 20 percent from recent peaks.
"There is an effect of technical rebound but it is too early to say that the crisis is over, or that's the end of the crash," said Olivier de La Ferriere, a fund manager at KBL Richelieu in Paris.
In Europe, the FTSE 100 index of leading British shares was up 1.3 percent at 5,232 while Germany's DAX rose 2.3 percent to 6,049. The CAC-40 in France was 1.1 percent higher at 3,207.
Wall Street was poised to give up some of Tuesday's late gains — Dow futures were down 0.6 percent at 11,123 while the broader Standard & Poor's 500 futures fell an equivalent rate to 1,165.
Worries over the U.S. economic recovery have been building over the past couple of weeks ever since the government revealed that the world's largest economy has been growing far more weakly in the first half of 2011 than economists expected.
In a reversal of earlier forecasts, economists now believe there is a greater chance of another U.S. recession.
U.S. economic data over the coming weeks have the potential to prompt new jitters.
"Given the tension that remains in the market, traders need to be wary of early bouts of profit taking, which is likely to keep rallies choppy," said Joshua Raymond, chief market strategist at City Index.
The other major market concern is Europe's debt crisis. Investors have grown increasingly worried that Italy and Spain could become the next European countries to have trouble repaying their debts. Greece, Ireland and Portugal have already received bailout loans because of Europe's 21-month-old debt crisis.
The fears have pushed investors to shun Spanish and Italian bonds, which have led to higher yields and in even higher borrowing costs for the two countries.
The European Central Bank stepped in Monday and bought billions of euros worth of their bonds. The move has helped to lower yields on Spanish and Italian bonds to around the 5 percent mark from over 6 percent. Their borrowing costs, though high compared to Germany and other euro countries, are considered manageable for now.
Earlier in Asia, the Shanghai Composite Index rose 0.9 percent to 2,549.18 and the smaller Shenzhen Composite Index gained 1.4 percent. Indexes in Taiwan and India also gained. Hong Kong's Hang Seng jumped 2.3 percent to 19,783.67.
Japanese stocks underperformed somewhat as investors continued to fret over the export-sapping appreciation of the yen.
Japan's Nikkei 225 index climbed 1.1 percent to close at 9,038.74 as the dollar headed near to post World War II lows against the yen. By mid morning London time, the dollar was 0.7 percent lower at 76.56 yen, not far above the level last week that prompted the Bank of Japan to intervene in the markets to stem yen's rise.
Meanwhile, the euro was up 0.2 percent at $1.4389.
In the oil markets, prices recovered alongside equities. Benchmark oil for September delivery was up $2.55 to $81.82 a barrel in electronic trading on the New York Mercantile Exchange.