(Updates to afternoon, adds comments)
* Fed's growth warning hits European, U.S. stocks
* Short-term rate yields slip
* Delay in rate hike to 2016 possible
By David Gaffen
NEW YORK, Sept 18 (Reuters) - Developed equity markets
across the world fell on Friday and bonds rose, pushing yields
sharply lower, after the U.S. Federal Reserve refrained from
raising interest rates amid weakening global growth and recent
financial market volatility.
Bucking that trend to advance were stocks and currencies in
emerging markets, which are more vulnerable to higher U.S.
interest rates and welcomed the Fed's Thursday decision to
postpone "lift-off" on rate hikes for at least another month.
Short-term lending rates, used as proxies for market
expectations for the Fed's next move, shifted dramatically.
December's fed funds futures contract rose to drop its yield to
21.5 basis points, implying only about a 42 percent chance of a
rate increase by the end of the year. ID:nL1N11O0LC
"Investors are wrestling with how concerned they should be
regarding global growth," said Jeremy Zirin, chief equity
strategist at UBS Wealth Management.
"The Fed has introduced a quasi-third mandate about the
global growth, apart from the labor market and inflation."
U.S. debt yields remained under downward pressure, though
the short-dated two-year note's yield had bounced from earlier
lows. It was at 0.7 percent, a day after it hit a
four-and-a-half-year high of 0.819 percent.
U.S. stocks weakened, following other developed markets. The
Dow Jones industrial average .DJI fell 183.19 points, or 1.1
percent, to 16,491.55, the S&P 500 .SPX lost 18.18 points, or
0.91 percent, to 1,972.02 and the Nasdaq Composite .IXIC
dropped 32.34 points, or 0.66 percent, to 4,861.61.
The FTSEuroFirst index of leading 300 shares slid 1.9
percent to 1,396 points .FTEU3 , its biggest fall in two weeks.
Japan's Nikkei average .N225 fell 2 percent.
European government bond yields tumbled, tracking the 2-year
U.S. Treasury yield's biggest fall since 2009. The 10-year
German Bund yield was down 12 basis points EU10YT=RR to 66
basis points, on course for its biggest one-day fall since early
July.
YEAR-END RATE HIKE?
A growing number of economists are now wondering whether the
Fed will raise rates at all this year. A Reuters poll of the
primary dealers in Treasury securities showed 12 of 17 now see
the first rate increase in December.
Fed Chair Janet Yellen said the global outlook appeared less
certain, adding that recent falls in U.S. stock prices and a
rise in the value of the dollar were already tightening U.S.
financial market conditions. ID:nL1N11N244
Emerging market equities rose to one-month highs on Friday,
with MSCI's broadest emerging market index .MSCIEF up 0.3
percent and on track for the biggest weekly rise since early
April.
The dollar recovered a little after falling more than 1
percent following the Fed's decision. The dollar index against a
basket of major currencies .DXY was up 0.2 percent at 94.756.
The euro EUR= gave up earlier gains, falling from a
three-week high of $1.1459 earlier to $1.1368, down 0.6 percent.
The dollar fell 0.1 percent against the yen to 119.84 yen
JPY= .
U.S. crude futures CLc1 were down 3.4 percent at $45.28
per barrel. Brent fell 2.1 percent to $48.05 a barrel LCOc1 .
Gold rose to a near three-week high. Spot gold XAU= was up
0.7 percent at $1,138.86 an ounce, after earlier hitting
$1,141.30.