Dollar shines, Asia shares slip after Fed signals Dec rate hike

TOKYO (Reuters): The US dollar shone while Asian shares slipped slightly on Thursday after the US Federal Reserve announced a plan to start shrinking its balance sheet and signalled one more rate hike later this year.

MSCI’s broadest dollar-denominated index of Asia-Pacific shares outside Japan was down 0.4%. South Korea’s Kospi was down 0.1% while Australia shed 0.6%.

Japan’s Nikkei gained 0.8% thanks to the yen’s fall against the dollar.

US share prices recovered quickly from initial losses following the Fed’s announcement, with the S&P 500 ending slightly higher, adding to a string of closing records.

As widely expected, the Federal Reserve announced it would begin in October to trim its massive holding of US Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

In the currency market, the rise in Treasury yields boosted the dollar’s attractiveness. The euro EUR= dropped to $1.1873 from above $1.20 just before the Fed’s policy announcement.

Likewise the dollar jumped to 112.595 yen, a two-month high, from around 111.30. The Bank of Japan is widely expected to keep monetary policy unchanged when it wraps up its two-day policy review later on Thursday.

Gold fell to $1,296.1 per ounce on Wednesday, its lowest level in more than three weeks, and last stood at $1,128.6.