Global equity markets rallied, with the Dow hitting a new high, the dollar gained and bond yields tumbled on Wednesday after Federal Reserve Chair Janet Yellen dampened growing expectations of more than one interest rate hike later this year.

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In remarks to the House Committee on Financial Services, Yellen said the U.S. economy is strong enough to absorb further gradual rate increases and the slow wind down of the Fed`s massive bond portfolio.

The testimony depicted an economy that is growing, albeit slowly, and continues to add jobs as it benefits from steady household consumption and a recent jump in business investment.

Given current estimates, the federal funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity, Yellen said in her prepared testimony.

Equities markets rose on the view the Fed`s monetary policy is not going to be as aggressive as some had anticipated, said Larry Hatheway, chief economist at asset management firm GAM.

"The Fed isn`t really going to upset the apple cart," Hatheway said. "There`s some softening here of what the Fed is going to do at least around rates. It doesn`t necessarily answer the question around its balance sheet."

MSCI`s gauge of stocks across the globe gained 0.90 percent while the pan-European FTSEurofirst 300 index of leading regional shares rose 1.64 percent and emerging market stocks rose 1.10 percent. .

On Wall Street, the Dow Jones Industrial Average rose 130.65 points, or 0.61 percent, to 21,539.72, above a high set July 3. The S